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| Vessels sit at Dubai World’s Drydocks facility in Dubai. Drydocks’ move is the first real test of the tribunal, set up in the aftermath of Dubai’s 2009 debt crisis, and is aimed at bringing resistant hedge funds to the table |
Dubai World’s shipbuilding unit is to test a form of insolvency protection developed after Dubai’s 2009 debt crisis, using a special tribunal to force recalcitrant creditors to sign up to its $2.2bn debt restructuring plan.
The move, announced by Drydocks World yesterday, is the first real test of the tribunal, set up in the aftermath of Dubai’s 2009 debt crisis where Dubai World itself took centre stage, and is aimed at bringing resistant hedge funds to the table.
Drydocks, a shipbuilding and repair business with operations in Singapore and Indonesia as well as Dubai, also filed legal proceedings in Singapore to push through the proposal, its lawyers told the tribunal.
“We have declared that we would like to go ahead and implement the restructuring and (because of) the minority who tried to delay the process, it is appropriate that we take immediate action,” Drydocks’ chairman Khamis Juma Buamim told reporters.
“It is incumbent on me ... to declare that I will go to court to force the issue. And we did.”
Drydocks said that creditors holding about 75% of the debt had agreed to the deal with more than four of the total 19 lenders yet to approve the plan.
The restructuring involves a five-year moratorium on debt repayments. The debt in the restructuring would be converted into new paper and lenders will not face a haircut on the principle amount.
The company filed a notification seeking insolvency protection under Decree 57 on Sunday night, sources had told ALB The Brief, a Thomson Reuters publication.
Dubai’s ruler issued Decree 57 in 2009, creating a special tribunal for Dubai World to deal with any litigation related to the state-linked conglomerate’s $26bn debt crisis.
The special court - which has so far only handled smaller claims but not faced a restructuring disagreement - met late on Sunday night and imposed a moratorium, allowing Drydocks to make a proposal to reach a voluntary arrangement with its creditors.
If that fails, the court can force holdout creditors to accept terms already adopted by the majority.
Dubai World the filing was a “pragmatic and sensible decision”.
“The fact that this system is now being tested is a significant development, as is the fact that a Dubai-linked entity is going down this route,” said Chavan Bhogaita, head of markets strategy unit at National Bank of Abu Dhabi. “This to some extent shows that they’re being more commercial, more savvy about the way in which they handle such a situation, which is indeed positive.”
The tribunal was established in the Dubai International Financial Centre and incorporates elements of other international bankruptcy laws.
Drydocks has been in negotiations to restructure its loan facility in an effort to put an end to lengthy and complex debt talks. In March, it proposed repaying creditors in five years and said it was seeking more working capital.
Buamim said yesterday the company has $318mn in cash and wanted to transfer debt from its south-east Asia operations to Dubai. It is also seeking a joint venture partner for its Singapore operations.
“The company is far from being bankrupt,” said lawyer Mark Hyde, head of insolvency and restructuring at Clifford Chance, who represented the firm at the DIFC Courts. “The company has significant financial resources to meet all of its liabilities.”
Hyde said the Dubai court filing procedure will not be completed until late June or early July.
Drydocks World’s debt restructuring, initially set to be completed by April last year, has dragged on as the presence of hedge funds and a lack of government support curbed prospects of an amicable deal.
A US-based hedge fund Monarch Alternative Capital won a $45.5mn legal claim against Drydocks this month for defaulting on a loan, putting the ship builder’s restructuring in further trouble.
“There is no negotiation required with Monarch. There is no special deal. They have to accept the deal on the table,” said Buamim.
The firm’s debts stem from a multibillion-dollar loan it took out to fund expansion in Singapore. Its major ship and rig building facilities are in southeast Asian countries such as Singapore and Indonesia.
Bookrunners on the 15-lender syndicate were BNP Paribas, HSBC Mashraq, Standard Chartered and Lloyd TSB Bank among others.