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Dubai Drydocks World tests special insolvency law

Dubai Drydocks World tests special insolvency law

Drydocks turns to Decree 57 special tribunal; Drydocks in talks to restructure $2.2 bln debt; Company files proceedings in Singapore to push through debt plan

April 2, 2012 4:09 by

 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 holdout creditors to sign up to its $2.2 billion debt restructuring plan.

The move, announced by Drydocks World on Monday, 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.

It said on Saturday it had the support of enough creditors to implement the restructuring, which involves a five-year moratorium on debt repayments.

“We take this step to protect the interests of the vast majority of the Group’s syndicated lenders, the clients, suppliers and wider stakeholders who continue to support the business throughout its restructuring,” Drydocks’ Chairman Khamis Juma Buamim said in a statement on Monday.

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 $26 billion debt crisis.

The special court – which has so far only handled smaller claims but not faced a restructuring disagreement – met late 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.

“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.

The company 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.

“The company has significant financial resources to meet all of its liabilities,” Mark Hyde, head of insolvency and restructuring at Clifford Chance LLP, said in a statement at the DIFC Courts. “The company is far from being bankrupt.”

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 U.S-based hedge fund Monarch Alternative Capital won a $45.5 million legal claim against Drydocks this month for defaulting on a loan, putting the ship builder’s restructuring in further trouble.

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.

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