Drydocks World has filed for insolvency protection at the Dubai World Tribunal to push through its US$2.2 billion (Dh8.08bn) debt restructuring.
The move by the shipbuilder is the first time a company has sought bankruptcy protection through Decree 57, which was issued by the Dubai Government in 2009 to deal with disputes related to the debt restructuring of Dubai World, which owns Drydocks.
A hearing took place yesterday at the Dubai International Finance Centre Courts, initiating proceedings.
Drydocks said on Saturday that its debt restructuring deal was being held up by a minority of investors who had yet to agree to a five-year plan for it to repay the debt owed.
The hold up led Drydocks to seek insolvency protection via the Dubai World Tribunal, which was set up in November 2009 to oversee the restructuring of Dubai World, and its subsidiary companies and its debts.
"The reality is we have been through quite a difficult time since 2008," said Khamis Juma Buamim, the chairman of Drydocks.
"However, I can say we certainly know it's all over. We are stronger than we ever thought we would be and the business is doing very, very well," he said.
No mention was made yesterday by Drydocks about the terms of the proposed new debt deal or whether lenders would recover all of their original loans or lose some of the interest owed.
Under Dubai's Decree 57 of 2009, if lenders representing two thirds of the value of debt agree to the deal, all lenders are forced by law to agree to the terms of the restructuring.
Drydocks' $2.2bn of loans were guaranteed in Dubai and Singapore, where the company had previously expanded.
So far, Drydocks has received confirmation from lenders representing 76 per cent of the $2.2bn owed that they would agree to the proposed debt restructuring.
"I [have gone] to court to force the issue," said Mr Buamin, who added he expected a two more creditors to agree to the proposed debt deal by today or tomorrow.
A total of 19 lenders are owed money by Dubai World. The insolvency proceedings will not affect the trading of the company, its suppliers, customers or any stakeholders, other than the group of lenders.
Three hedge funds own part of Drydocks' $2.2bn debt. It is as yet unclear whether they are the parties resisting a deal, but hedge funds have stalled restructuring processes in other parts of the Gulf this year.
Arcapita, an investment bank based in Bahrain, last month filed for bankruptcy protection in the United States after talks with hedge funds over its $1.1bn debt broke down.
Monarch Alternative Capital, a hedge fund in the US, last month won a $45.5 million legal case in London against Drydocks over default on its debts and sought a restructuring.
The London ruling was enforceable on Drydocks' assets in Singapore, but is no longer enforceable because of the Decree 57 ruling.
Mr Buamim said yesterday Drydocks would try to divest some of its business in Singapore and form a joint venture with a local company there.
He declined to comment on how much the divestment would earn for the company but said the proceeds would be used to pay off the 19 creditors.
Decree 57 is a bespoke insolvency process unique to the Dubai World Tribunal. It contains many recognisable features of well-known English and US restructuring tools such as company voluntary arrangements and Chapter 11 of the US Bankruptcy Code.
Drydocks first sought a restructuring of its debt in 2010. It is seeking to restructure two bank loans that were issued in 2008, one valued at $1.7bn and the other at $500m.
The $1.7bn loan came due in October and the $500m loan matures next year.
"Dubai World notes and supports the filing by Dubai Drydocks World under Decree 57," said a spokesperson from Dubai World.
"This is a pragmatic and sensible decision that protects the majority of its creditors from a minority who had not agreed to its restructuring proposals."