Dubai Drydocks Uses Special Tribunal To Restructure $2.2Bn Debt

Dubai Drydocks Uses Special Tribunal To Restructure $2.2Bn Debt

Dubai World’s shipbuilding unit, Dubai Drydocks, has used special insolvency protection to help it to restructure $2.2bn of debt. The company filed for the protection under ‘Decree 57’, which is a special law implemented in 2009 after Dubai was plunged into a debt crisis. It created a tribunal to allow Dubai World to handle any legal fallout from the restructuring of its $26bn debt pile. While it has already handled some claims, the Dubai Drydocks filing is the first case of this type.

Dubai Drydocks said on 5 April that after it filed for Decree 57 four days earlier, the “overwhelming majority of its lenders formally support its proposals to enable it to successfully implement its restructuring.” It said that the process will have no effect upon its operations, its clients, suppliers or employees and that business will proceed as usual during the process and once the restructuring is effective.

Khamis Juma Buamim, Chairman of Drydocks World and Maritime World, said that the use of the decree to help the company conclude the restructuring is “ground-breaking and not a step the business took lightly.” The company commented that the support of the vast majority of its syndicated lenders should override “the disappointing response from an insignificant minority of its syndicated lenders who to date have failed to support the company’s proposals.” The company’s debt restructuring was planned for completion in 2011, but hedge funds were not receptive and it dragged on. It then outlined the major terms of a new plan early in March, and said it planned to complete the process in mid-year. The company became over-leveraged when it expanded into Singapore.

The company said it has won contracts totaling $255mn since the turn of the year and expects to close 2012 with higher EBITDA (earnings before interest, tax, depreciation and amortization) than budgeted. It said unaudited EBITDA for 2011 was 65% above expectations. The company’s shipyard handles around 350 vessels per year, most of them ULCCs (Ultra Large Crude Carriers) and VLCCs (Very Large Crude Carriers) and has repaired over 6,600 vessels in its 25 years of operation. In its yard, several of the world’s largest dredgers and jack-up rigs are serviced and it also has specialized LNG handling capabilities.

The shipbuilding company’s parent DP World said in March that it would use cash resources to pay down its own $3bn in outstanding debt, which was due to mature in October this year. The repayments will take place from 4-10 April. As of 31 December the company had $4.2bn in cash, and following the $3bn repayment, this will fall to $1.2bn, and its total debt will be reduced to $4.7bn. Moody’s Investors Service commented in December that the debt profile of Dubai state-owned companies has evolved, but at the same time it warned risks remain. It has identified $101.5bn of debt linked to the Dubai government and its state-owned non-financial corporates (MEES, 26 December 2011).

Copyright MEES 2012.