Shipyard operator uses new law to push through $2.2bn debt restructuring plan
Dubai’s Drydocks World, part of the debt-laden Dubai World group, has launched legal action that will enable it to force through a $2.2bn debt restructuring without the consent of all its creditors.
It is the first time a company has tried to take advantage of a 2009 law, Decree 57, established to ensure that the $25bn debt restructuring of Dubai World went through smoothly.
By filing a claim under Decree 57, Drydocks can push through its restructuring plan, as long it has the consent of at least two-thirds of its creditors and stop dissenting creditors from being able to claim its assets.
The company, which operates a ship overhaul yard, has been trying to restructure the debt since 2010. A total of 76 per cent of Drydocks’ creditors by value, and more than half by number, have agreed to the new terms offered as part of the restructuring in lock-up agreements, according to advisers representing the firm. More are expected to agree over the coming weeks. The agreements also prevent creditors from backing out of the plan later.
Dubai debt maturity | |
---|---|
($bn) | |
2012 | 11,026 |
2013 | 3,977 |
2014 | 4,213 |
2015 | 8,368 |
Source: Moody’s |
A similar legal action has also been launched in Singapore to protect the assets of the company there. The Singapore law requires 75 per cent of creditors by value and 50 per cent by number to agree to the restructuring plan before it can be forced on minority creditors. “A company only initiates these proceedings when it is confident of the outcome,” says Ian Schneider, a partner at PricewaterhouseCoopers, which is advising Drydocks on its restructuring.
The debt being restructured was put in place to fund two 2007 acquisitions in southeast Asia. Under the restructuring plan, Drydocks will sell off a stake in its southeast Asian assets to return money to creditors. The lock-up agreements commit the firm to completing the sale by 30 September, when the agreements expire, although this can be extended if creditors agree to it.
The remaining debt is set to be repaid over a period of five years. Drydocks has committed to repaying creditors in full, according to chairman Khamis Juma Buamim, although he would not comment on what interest rate would be offered to creditors as part of the deal.
“We have been through some difficult times since 2008, but we are now back on track,” says Buamim. “We have $318m in the bank and are comfortable that we will meet our financial commitments.” Unlike in the restructuring of Dubai World, Drydocks has not sought government support, although Schneider did confirm that the equity holders in Drydocks had written down the value of their investment to zero.
The legal action was prompted at least in part by US hedge fund Monarch Capital. In February, Monarch won a ruling in a UK court that Dubai World was in default on its debts. However, its options for using that judgement to obstruct the restructuring process are limited now the protection under Decree 57 has been granted. “Our read of the situation is that the Dubai courts will not recognise a judgement by the UK courts,” says Mark Hyde, partner at Clifford Chance, the law firm representing Drydocks.
A meeting of the 19 financial creditors to Drydocks will be held on 8 May to determine how to vote on the restructuring deal. The firm hopes to have completed the proceedings by early July.
It is the latest sign that Dubai is making progress in managing its $110bn debt pile held by the government or state-owned companies. Two other companies identified as potentially needing state help are currently trying to raise new money to help refinance large debt obligations due later this year. DIFC Investments, the investment arm of the Dubai International Financial Centre, is planning to raise a $900m loan to help refinance a $1.25bn sukuk (Islamic bond) maturing in June.
Meanwhile, Jebel Ali Freezone (Jafza) is in the process of raising a AED2.4bn sukuk and a AED4.4bn loan to refinance a AED7.5bn sukuk that needs to be repaid in November.
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