Drydocks World, Dubai’s indebted ship repairer, has secured 87% creditor support for its $2.2 billion debt restructuring plan ahead of the decision of a special tribunal the company is using to push the deal through, and hopes to win 94% support shortly.
The company is seeking to repay its creditors in full over five years, and is breaking new legal ground in the emirate by resorting to an insolvency procedure handed down in Decree 57 of 2009, which provides for debt restructuring through a special tribunal at Dubai’s DIFC. The company has also made a parallel filing in Singapore.
The Decree only applies to Dubai World companies, but there is hope that it will extended to all companies in Dubai in order to boost the emirate’s competitiveness and flush out overhanging debt which may be slowing the pace of economic recovery. The court system at DIFC has developed rapidly, with a recent decree whcih allows any company to take a dispute to the DIFC Courts lauded by commercial and legal commentators.
Modelled on corporate insolvency procedures in the UK and US, the Decree contains cramdown provisions to ensure a minority of creditors cannot hold up a debt proposal from being adopted in a strong majority agree to proceed.
Drydocks will also hope that obtaining the tribunal’s approval of the deal will ensure that disgruntled creditors are barred from suing on their debts in other jurisdictions. Hold-outs such as hedge fund Monarch Capital, which recently won a court judgment against Drydocks in London over its $46 million slice of the company’s debts, now face strong commercial incentives to take the deal, or engage in lengthy and expensive litigation.
The Dubai World subsidiary borrowed at the height of the credit boom to fund two expensive acquisitions of Singaporean shipyards, with its debt tied to 1.7% and 1.9% above the LIBOR interbank lending rate respectively.
The company has reported profits of $116 million for 2011 and is targeting profit growth of 15% as demand for the refurbishment of ULCCs and VLCCs increases with oil prices.
Khamis Juma Buamim, Drydocks World’s Chairman drafted in after the credit bust to clean house at the company, has vowed repeatedly that, with more time, the company can repay its creditors in full.
“In no way will there be a haircut,” Buamim told the Financial Times. “The company has reached agreement with the majority of creditors to continue on a sustainable debt basis.”
An initial reckoning of the headline numbers involved suggests Drydocks may not be able to satisfy creditors in full out of net profits alone. Debt repayments – excluding the interest which continues to roll up on the principal owed – outsize current net profit by a ratio of nearly four to one. While the company’s profit outlook is strong, divesting assets may be key to Drydocks seeing the back of its creditors.
“We would be looking to explore all options” for the South East Asian business, Buamim told Bloomberg. “We have an exit strategy in the Far East, part of which is redefining our capacity there, our efficiencies and looking at what is core and non-core.”
