x Abu Dhabi, UAEFriday 28 July 2017

Drydocks World to restructure $2.2bn in debt

Drydocks World, one of several Dubai companies facing short-term debt issues, is racing to restructure $2.2 billion in debt.

Ship repair facilities at Drydocks World. The company aims to complete its restructuring by March. Jaime Puebla / The National
Ship repair facilities at Drydocks World. The company aims to complete its restructuring by March. Jaime Puebla / The National

Drydocks World, a ship repair company owned by Dubai World, is trying to finalise a US$2.2 billion (Dh8.08bn) debt restructuring as Dubai and its government-owned firms face billions of dollars of debt coming due next year amid a difficult global climate for refinancing.

Khamis Juma Buamim, the chairman of Drydocks World, said yesterday the company aimed to complete the restructuring by March, even as observers say banks are less willing to refinance or negotiate new debt terms following Europe's sovereign debt crisis.

Mr Buamim said Drydocks World would repay the bank loans in five to eight years in the restructuring under discussion. He said the company had not asked for a government guarantee as part of the talks begun this year.

It is also exploring joint ventures on non-core assets, such as its shipping fleet, as well as its contracting and manpower operations.

"We are trying to redefine our core business and what it will look like down the road," Mr Buamim said.

That assessment comes as worry intensifies that large amounts of additional borrowings coming due next year presage a new round of debt woes for Dubai. Emaar Properties, the Dubai developer, on Monday announced a new Dh3.6bn financing facility, arranged through a trio of UAE banks, to help cut its short-term debt.

Estimates vary, but the IMF's latest figures put sovereign and quasi-sovereign debt maturities at about $15bn next year.

The Dubai Government denied this month that further restructuring would be necessary, saying it would seek to roll over debt. That, however, has not dampened concern among analysts or investors about the emirate's finances.

The issue also continues to weigh on local stock markets already stricken by sagging trading volumes and falling prices.

"This will remain a topic of conversation with investors," said Ali Khan, the head of Middle East and North Africa equity sales at Royal Bank of Scotland in London. "The global backdrop has become more challenging since this subject emerged a couple years ago for Dubai."

Adding to the list of concerns, while the government-owned Dubai World completed a $24.9bn debt restructuring this year, several Dubai Government-linked entities are still in the midst of reworking the terms of their debt with banks.

Drydocks World, which was carved out from Dubai World's debt deal, is joined by at least four other government-linked or government-owned companies undergoing financial restructurings. They include Zabeel Investments, Dubai International Capital, Dubai Group and the property developer Limitless.

Corporate borrowers often seek to refinance debt when it matures by replacing it with new loans. If banks are unwilling to make those new loans, however, and a company is unable to repay the debt, it must either default or seek an extension in the form of a restructuring.

Moody's Investors Service, one of the world's largest credit ratings agencies, this month singled out the Jebel Ali Free Zone, Dubai Holding Commercial Operations Group and DIFC Investments - which collectively have about $3.8bn of debt due next year - as vulnerable to refinancing risks.

"Even the strongest names are finding access to the capital markets to be patchy so that adds execution risk to any refinancing initiative," David Staples, the managing director for GCC corporate ratings at Moody's, told The National this month. "On top of that, banks are already more cautious and more conservative in their credit standards after the last downturn."

The debt Drydocks World is seeking to restructure comprises a pair of bank loans it took out in 2008, one worth $1.7bn and the other $500 million. The $1.7bn loan came due in October, and the $500m loan matures in 2013.

Drydocks World, which operates shipyards in Dubai and Asia, does not expect to raise money through a bond, Mr Buamim said yesterday.

It expects to record earnings of $116m for its Dubai operations, up from projections of $65m for the year.

The company's loss margin was reduced from 20 per cent last year to 5 per cent this year, he said.

"Next year may be a profit," he said.

afitch@thenational.ae

kbrass@thenational.ae

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