x Abu Dhabi, UAEWednesday 26 July 2017

Drydocks World lenders brace for haircut

Drydocks World is expected to announce further details today of its proposed $2.2 billion restructuring, having received the necessary level of support from lenders.

The restructuring at Drydocks, which is owned by Dubai World, is under close scrutiny as it is seen as a bellwether for other companies and government-related entities that are restructuring and refinancing their debts this year. Jaime Puebla / The National
The restructuring at Drydocks, which is owned by Dubai World, is under close scrutiny as it is seen as a bellwether for other companies and government-related entities that are restructuring and refinancing their debts this year. Jaime Puebla / The National

Drydocks World is expected to reveal the terms of its proposed US$2.2 billion (Dh8.08bn) restructuring today.

The proposed deal is to last five years and analysts say lenders could take a haircut on their original loans.

"Since the majority of lenders support [the restructuring], it is a done deal," said Khamis Juma Buamim, the company's chairman.

He would not comment on whether three hedge funds that are creditors were among the small minority of investors yet to agree to the restructuring. Monarch Alternative Capital, a hedge fund in the United States, last month won a $45.5 million legal case against Drydocks.

"The concern I had was with the major lenders, international and local. Would they come forward and give us the requirement and the majority?" said Mr Buamin. "They have, and that's more than enough for my company."

Under the terms of a new deal, lenders will be repaid over five years, but Mr Buamin would not disclose the level of debt lenders had agreed to write down. He instead said "further details" would be provided today.

The restructuring at Drydocks, which is owned by Dubai World, is under close scrutiny as it is seen as a bellwether for other companies and government-related entities that are restructuring and refinancing their debts this year.

Dubai's refinancing needs are large and have been made more worrying given the weakened lending environment globally linked to the euro-zone sovereign-debt crisis.

But Mahin Dissanayake, a banking analyst at Fitch Ratings, said confidence had returned in the debt market since the beginning of the year. "Our view has changed since the start of this year and the fourth quarter of last year, some major entities have managed to refinance debts.

"That's given us confidence that other Dubai-related entities can refinance debts that come due this year. Obviously the cost of financing has risen but there seems to be strong appetite for the highly-rated regional entities."

Mr Dissanayake also said new bank investors from the Far East had come into the market, which had broadened the investor base.

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 in June.

Dubai's total debt load after the Dubai World restructuring is $119.8bn, according to a Bank of America Merrill Lynch report.

Mr Buamin said its lenders had been willing to restructure and that the climate for refinancing looked optimistic. "From my understanding [the lenders] have been very positive," he said. "The company has showed an upturn. They are happy with that because that is an indication of a business that has value."

Drydocks reported earnings of $125m before interest and tax last year and is expected to reach a similar level this year.

It is still unclear whether Monarch will seek to be repaid before other lenders, but Mr Buamin said last week the fund would be treated the same as other creditors.

rjones@thenational.ae

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