Asmak Set To Expand

The International Fish Farming Holding Company, better known as Asmak, has inked a deal with an Abu Dhabi company that will provide it with AED420 million (US$114.34 million) to help it expand and return to profit.

According to The National of the UAE, Royal Group, a holding company based in Abu Dhabi, has agreed to buy two-year convertible bonds from Asmak, according to a filing on 29 December to the Abu Dhabi Securities Exchange.

"We are using the money to invest in the company," said Mohammed Helal al Muhairi, a vice chairman of Asmak.

"Our strategy is to expand what we are already doing – aquaculture and fisheries – but also to expand into new areas so we can obtain sustainable profit for our shareholders."

He said Asmak would use the funds to revive its fish-farming business and expand into other sectors and acquire companies to help its profit flows and allow it to award dividends. The largest single shareholder of Asmak is Hydra Properties, a development company fully owned by Royal Group, which has a 47 per cent stake.

The convertible bond could make Royal Group a major shareholder when it matures in two years.

The debt issuance is a sign of the challenges Asmak has faced in the fish farming business, which can take years to become profitable because of the costly and complex process of setting up and developing aquaculture facilities.

While Asmak initially focused on building farms in the Emirates, it discontinued operations in the UAE and Oman in 2009 because of red tides – huge blooms of oxygen-depleting algae – that threatened to suffocate its fish.

Now Asmak focuses primarily on the less profitable sourcing of fish from around the world for local supermarkets and catering companies. The company was originally spun off by the UAE Offsets Group with funding provided by Dassault Aviation after the country bought Dassault's Mirage fighters.

Under UAE rules, defence and aerospace companies doing business with the country must create projects that contribute to other sectors of the economy to a value equivalent to 60 per cent of the value of their contracts.

But Asmak has struggled to make sustained profits. It posted an AED1.38 million loss for the third quarter last year, compared with a AED2.55 million loss in the same period in 2009.

In early 2008, the company created a subsidiary called Emirates Stallions Properties in a bid to take advantage of the property boom.

The National reports that it spent AED140 million on four plots of land on Abu Dhabi island and paid AED35 million on other property, which is not yet fully paid up, according to financial records. It bought some of the property from Hydra Properties, according to a source familiar with the company. Hydra Properties declined to comment.

Fish farming is a particularly challenging business. Jean-Yves Mevel, a manager for an aquaculture project from Al Bayan Holding Company in Saudi Arabia, said the region had huge potential for fish farms because the warm waters resulted in fish stocks maturing quickly.

But he said the aquaculture business was particularly tricky and took a long time to yield returns.

"A lot of licences are given across the region, but they are taken away again because [operators] don't do anything or they give up," he said.