A potential $2.2 billion (Dh8 billion) debt restructuring for Drydocks World, the shipbuilding arm of Dubai World, is seen facing tough headwinds with the presence of hedge funds and other issues seen threatening an amicable deal.
Drydocks has set up a committee to thresh out an agreement for the restructuring of its $2.2 billion debt pile. The firm missed a payment deadline for a $1.7 billion three-year loan facility that it took in October 2008. It also has another five-year $500 million facility on the restructuring table.
But a potential debt accord may be hampered with a large portion of the loans getting offloaded by banks to hedge funds in secondary market deals. The loans last exchanged hands at 49 cents to the dollar in September, one secondary market loans trader said.
"Some of the lending bank consortium members have sold the loans to international hedge funds ... This will make an amicable restructuring deal difficult for the company," said Suketu Sanghvi, head of structuring and investments at Essdar Capital in Dubai.
"The international hedge funds are unlike the commercial banks or regionally based fund managers. These funds do not invest for long-term relationships and are usually not concerned about reputation risks associated from dealing with distressed borrowers or their governments through litigation routes."
Bookrunners in the 15-lender syndicate were BNP Paribas, HSBC Mashreq, Standard Chartered and Lloyds TSB among others.
"We are working with all our lenders across the board and hopefully we can come up with a solution. We are in serious discussions and we are committed to completing the restructuring in a fair manner," Khamis Juma Bu Amim, chairman of Drydocks World, told Reuters yesterday.
He said the restructuring could be completed as early as the first quarter of 2012.
The restructuring has dragged on for months after the company said earlier it expected to complete the deal by end of April and had agreed on headline terms with banks.
Government-related and private companies in the region have so far avoided restructuring by agreeing with creditors to extend maturities — a practice labelled "extend and pretend" by some bankers.
This method has helped banks avoid billions of dollars in writedowns and enabled companies to avoid the embarrassment of a debt restructuring. But with hedge funds coming into the picture, demands may get even more stringent, bankers say.
"[Hedge funds] are not interested in sipping coffee at the [Dubai International Financial Centre] and hoping for repayment six years later. They are likely to force asset sales and timely repayments," one Dubai-based banking source familiar with debt restructurings in the region said, speaking on condition of anonymity.
One New York-based distressed debt investor, Monarch Alternative Capital, has sued Drydocks in a London court seeking claims of $45.5 million.
"It is regrettable that this one lender decided for unclear reasons to take legal action. The company is reviewing its options and no doubt it will defend the case," Drydocks said in a statement in October.
A potential restructuring poses big challenges for Drydocks World, which is seen as a non-core asset by the Dubai government and is unlikely to receive any support.
Parent Dubai World has itself restructured $25 billion in debt, pushing back repayment to between five and eight years. Drydocks World was not included in its restructuring.
When asked if the company was looking at the sale of assets for repayment, Bu Amim said: "We are looking into strategic profiling of different assets but this is regular business," adding there had been no specific discussions on asset sales.