Drydocks World's US$2.2 billion (Dh8.08bn) debt restructuring has hit a snag after one of its creditors successfully sued the shipbuilder for defaulting on its debts.
The US hedge fund Monarch Alternative Capital won a $45.5 million case this week against Drydocks, which is owned by Dubai World, having first claimed against the company in the High Court of London last year.
The legal win places the $2.2bn restructuring proposed last week by Drydocks to creditors in jeopardy, because Monarch is one of the lenders involved in the deal.
"As made clear at the all-lender meeting, the company is confident that it can still implement its restructuring if it transpires that Monarch do not accept the terms on offer," Khamis Juma Buamim, the Drydocks World chairman, said yesterday.
"But I would very much hope that, notwithstanding their legal action, Monarch will accept the very reasonable restructuring proposal."
The restructuring of Drydocks is an important gauge of the appetite among global lenders to refinance or restructure debt owed by Dubai companies and government-owned entities.
Dubai's refinancing needs this year are significant and are made more worrying given the weakened lending environment globally, driven by the European sovereign debt crisis.
Two of the largest debt deals maturing this year are the Jebel Ali Free Zone's $2bn Islamic bond, which is due in November, and a $1.25bn sukuk from DIFC Investments, due in June. The IMF, Bank of America Merrill Lynch and ratings agencies estimate repayments or refinancings of about $15bn this year.
The emirate's total debt load after the Dubai World restructuring is $119.8bn, according to a report by the investment bank Merrill Lynch.
Drydocks had injected some optimism in the market in the past few weeks after it claimed its restructuring was all but completed.
Last week, Mr Buamim presented a proposal to lenders to pay back the debt owed in five years.
"The company remains extremely confident it can gain support for its proposals and that it will secure the necessary support of its lenders to successfully implement its restructuring," he said. "This will leave the group in a strong position to continue to develop and implement its strategic plans."
Drydocks is seeking to restructure two bank loans that were issued in 2008, one worth $1.7bn and the other $500m. It first began to restructure its debts in 2010.
The $1.7bn loan came due in October, while the $500m loan matures next year.
Legal experts said the court judgement in London did not necessarily mean the ruling was applicable in the UAE, and that it depended on the legal treaties in place. Monarch could pursue Drydocks assets in countries outside the UAE, such as Singapore and Indonesia, if those places had enforcement treaties with UK legislation, lawyers said.
"An English High Court judgement issued against a Dubai-based debtor would therefore not automatically be enforced in the UAE without further court action in the UAE," said Erik Muthow, a partner at Hadef & Partners in Dubai.
"The judgement creditor would then have to prove to the UAE court that the foreign judgement meets the enforcement criteria as set out in the civil procedure code."