Drydocks World, the Dubai government-owned marine engineer, has reached an impasse in its talk with creditors over US$2.3 billion of outstanding debts.
A recent meeting between the company, advised by Citibank, and creditors, represented by six financial institutions and advised by the American specialist firm Moelis & Co, ended with disagreement on terms of a proposed deal to restructure the debt in two tranches.
According to a financial source close to the situation, the company is believed to have proposed an extension of the first tranche of debt, about US$800 million that is due in 2017, with a small cash repayment element.
It is also proposing two options on the larger $1.5bn tranche, which matures in 2027, with one offering a much reduced cash buyout and the other an extension of the debt into a new 15-year loan under new repayment conditions.
According to the source, the creditors are considering different proposals that demand an all-cash deal on the 2017 tranche and a cash premium on the larger amount. “Their stance represents a materially better proposal for creditors and they are maintaining a hardline position that may make it difficult for any deal to be reached,” the source said.
A spokesman for DDW declined to comment on the state of the proposals.
It is not unusual for parties in restructuring talks to adopt tough positions to try to force the hand of the other side. It does not mean the talks are at an end.
The restructuring involves debt that was already refinanced in 2012, after DDW was unable to make repayments of loans taken on before the financial crisis to find expansion in South East Asia.
When the latest restructuring was rumoured earlier this year, the company suggested it was taking advantage of the improved economic situation in the Arabian Gulf to refinance its exposure. Now, it appears the knock-on effect of the falling oil price has put it under fresh pressure, with doubts about its ability to repay the 2017 tranche as agreed three years ago.
In the meantime, much of the debt has been sold by the original bank creditors and bought in the secondary market by hedge funds and other distressed asset traders.
Of the six financial institutions on the DDW coordinating committee, three – Mashreq, Emirates NBD and ING – are traditional banks while the rest are debt traders and hedge funds – a unit of the US investment bank Goldman Sachs and two American hedge funds, Davidson Kempner Capital Management and Silver Point Capital.
The steering committee is believed to represent about 70 per cent of debts by value. It is thought that about 65 per cent of DDW debts are held by hedge funds and traders, which could change the dynamics of the negotiations, according to experts.
“Commercial bank creditors want to have their debts repaid but they are also interested in preserving normal lending relationships. Hedge funds just want to make financial returns,” one said.
DDW is a subsidiary of Dubai World, which was at the centre of the emirate’s debt crisis in 2009 when it sought to delay and amend repayment of $25bn of loans. A restructured deal was eventually agreed in 2011.
DDW is chaired by Abdulrahman Al Saleh, who is also the director general of the Dubai Department of Finance. He replaced the long-time chairman Khamis Buamim, who led the first restructuring of DDW in 2012.
Among assets regarded as attractive by creditors, the company boasts the largest shipyard in the Middle East at Port Rashid in Dubai. It also has revenue from four other fully operational facilities – one in Singapore and three on Batam Island in Indonesia – under a joint venture with a Singapore company.
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