Creditors to Drydocks World (DDW) have hired US specialist investment bank Moelis & Co to advise them in their negotiations with the Dubai based maritime engineer over restructuring US$2.3 billion of debt, according to people familiar with the situation.
New York based Moelis is well known in the Dubai financial scene. The bank played a leading role in the 2010 negotiations between bank creditors and Dubai World, which successfully ended the emirate’s financial crisis.
However, the US bank was then advising the Dubai government, whereas this time it finds itself on the other side of the table: working for creditors who are being asked to change the terms of total debts of $2.3bn in two tranches – one of $800m which matures in 2017, with the balance repayable in 2027.
Neither DDW, which is owned by the government of Dubai as part of the Dubai World conglomerate, nor Moelis would comment on the appointment, but one banker said: “This is a sign that the creditors are serious and committed to getting the best possible deal in the renegotiation.”
The official line from DDW is that the refinancing is seen as 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 2017 tranche of debt.
Talks to amend terms of the debts are still at an early stage, but it has emerged that DDW will have to deal with a significantly different set of creditors than in 2012, when the company last restructured its debts after invoking the provisions of the Dubai World bankruptcy laws, known as Decree 57.
Many of the bank creditors involved in talks then have since sold their debts in the secondary markets. It is believed that as much as 70 per cent of the debt is currently held by hedge funds and dealers in distressed assets.
Experts say that because these investors do not have continuing lending relationships with DDW, they are more likely to take a tougher stance in negotiations about changing the terms of repayment.
“These guys will be unimpressed by the arguments that because Dubai’s economy position has improved since 2012 and interest rates are lower, it’s time to talk about a better deal. These guys just want their cash,” said one restricting expert who has been in contact with several creditors.
DDW has called in Citibank to advise its board on the renegotiation, a choice which has surprised some of the financial institutions holding DDW debt.
“Citi is a fine advisory bank with lots of resources across the investment banking spectrum, but it is not known as a restructuring expert,” said a source close to the creditors.
Some had expected Blackstone, another US advisory firm, to get the DDW job after it advised parent Dubai Word last year on a second refinancing of $15bn of debts.
Citi declined to comment on the situation.
The second restructuring of DDW – owned by the government and under the chairmanship of Abdulrahman Al Saleh, director general of the Dubai department of finance – is regarded as a “sensitive” issue in Dubai financial circles.
Mr Al Saleh, who is also on the board of Dubai World, came in to DDW in March to replace 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.
Other high-profile assets include the cruise ship QEII, which is still moored on DDW facilities at Port Rashid in Dubai awaiting a decision on final plans for the vessel, which was bought at the height of the global asset bubble in 2008.
More significant for DDW’s future is a strategic choice between continuing with the move into oil services engineering, rather than the traditional shipbuilding and repair business, in light of cut backs in the oil industry against the background of lower oil price; and DDW’s involvement in big projects such as Dubai Maritime City, a multibillion development off the Dubai coast slated for completion in 2020.
Moelis opened a permanent office in Dubai after the Dubai World renegotiation, and has since advised on several big deals in the Middle East region.
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