Hedge funds and distressed asset traders hold the whip hand in restructuring talks between Dry Docks World (DDW) and creditors owed US$2.3 billion, it has emerged.
The Dubai-based engineer, owned by the government conglomerate Dubai World and advised by Citibank, held its first full meeting with creditors in London last month.
A six-member steering committee of financial institutions representing creditors comprises three banks and three hedge fund investors, according to a source close to the talks.
The banks are Mashreq and Emirates NBD from the UAE, with the Dutch group ING representing international bank creditors.
The other three members are a debt trading unit of the US investment bank Goldman Sachs, and two US hedge funds, Davidson Kempner Capital Management and Silver Point Capital.
The creditors, advised by the American specialist adviser Moelis & Co, are being asked to change the terms of repayment of a total of $2,3bn, which mature in two tranches: one of $800 million due in 2018, the rest in 2027.
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, which have bought the debt in secondary markets from bank creditors.
Experts believe the involvement of so many hedge funds changes the dynamic of the negotiations.
“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.
Hedge funds are likely to have paid considerably less than the face value of the debt, which is trading at about 14 cents for every dollar of debt.
The talks in London are said to have been “preliminary but informative” by the source, who said that no formal proposal had been put forward.
A spokesman for DDW declined to comment on any aspect of the restructuring. But a person familiar with DDW said that any offer that might emerge would be “fair and economically rational”.
The official line from DDW is that the refinancing is an opportunity to get better terms from creditors in view of the improved economic situation in Dubai and lower interest rates.
But some bankers are concerned that the group is struggling to repay the 2018 tranche of debt.
The debts were originally restructured in 2012 as it emerged that DDW was having problems meeting the repayments on debts largely taken on to fund expansion into shipyards in South East Asia.
The company was then the first to use the provisions of the Decree 57 bankruptcy laws put in place in 2010 to deal with the Dubai World debt crisis. It is open to the company to use the threat of bankruptcy protection laws again.
The second restructuring of DDW – under the chairmanship of Abdulrahman Al Saleh, director general of the Dubai Department of Finance – is regarded as a “sensitive” issue in Dubai’s financial circles.
Mr Al Saleh, who is also on the board of Dubai World, joined DDW in March to replace the long-time chairman Khamis Buamim, who was credited with seeing DDW through the last set of restructuring negotiations.
Since then, DDW is believed to have begun reconsidering some of its big projects, such as plans for an underwater hotel.
The cruise ship QEII is still moored on DDW facilities at Port Rashid in Dubai awaiting a decision on the final plans for the vessel from its owner Dubai World, which bought it at the height of the global asset bubble in 2008.
fkane@thenational.ae
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