In a Drydocks World LLC hearing last Thursday (2 November) in the Dubai International Financial Centre (DIFC) Courts, the Dubai World Tribunal members threw out Mashreqbank’s classification argument, said two sources close to the situation. The judges ruled before hearing opposing counsel Clifford Chance’s counter arguments.
At the core of Mashreq’s claim is that it wishes to be treated as a different class, in its capacity as an original lender, as reported. Both Mashreq and National Bank of Fujairah (NBF) reject the restructuring proposal on this basis, and last week brought their claims to the Courts.
One of NBF’s key issues with the offer is the envisaged cica 77% haircut the lender will need to assume on its PPL exposure, said a third source close to the situation.
NBF also opposes certain classes of creditors including vulture funds, which bought in at around 18%. The proposal will see these funds realise a profit of some 4%, and the original lenders bear a loss of just under 80%, said the third source.
NBF is also taking issue with how the company voluntary arrangement (CVA) was marketed by Drydocks, leading to the subsequent sale of the shipyard to related entity DP World Limited, said the source. Both Drydocks and DP World are owned by Dubai World.
DP World announced on 18 September that it entered into agreements to acquire Maritime World LLC, the 100% owner of Dubai Maritime City (DMC), for USD 180m and to buy 100% of Drydocks World through a USD 225m capital injection, taking the total cash required for both acquisitions to USD 405m.
But in March last year, Mashreqbank, along with Massar Capital, bought out some funds which were blocking the restructuring negotiations for Limitless, previously part of Dubai World. The holdouts constituted under 20% of the overall debt and the two buyers paid between 80 and 84 cents on the dollar to the unconvinced parties, as reported.
During last Thursday’s hearing, Drydock’s counsel Clifford Chance said that Mashreq and NBF are the only two lenders holding out from the offer that Drydocks made to its creditors in September. They added that 87.3% of the NTL lenders by value have so far acceded to the lock-up agreement, while 88.72% of the PPL lenders — also by value- are onboard with the proposal.
Drydocks filed on 2 October under Dubai’s Decree 57 – a bespoke restructuring procedure designed exclusively for Dubai World and its subsidiaries. A two-thirds majority is required to sanction a restructuring under the process. If 100% of creditors agree, there is no need for the process, used to cram down dissenting creditors, as reported. By mid-September, around 85% of creditors across both classes had signed lock-up agreements, making the process largely a formality.
Most Drydocks debt holders are cross holders of both the USD 630m equivalent of senior NTL debt and the USD 1.43bn junior PPL debt, as reported.
The presiding judge asked Mashreqbank’s counsel on 2 November why it took the lender until 30 October to bring forward their concerns with the proposal. Their lawyers replied they needed input on both Chapter 11 and Shariah law, adding they would need 21 days to present evidence supporting their claim of unfairness to their class as creditors.
Mashreq and NBF are likely to reject the restructuring proposal at the post arrangement hearing, scheduled for 14 January 2018, when the judge will rule over the validity of the CVA, according to the first source, the third souce and a fourth source close to the situation. There will likely be a hearing before the end of the year, but this will purely comprise procedural matters such as deadlines for serving evidence, added the first source.
The duo would need to prove undue process, but their objection is not based on this, according to the first source close. The Drydocks restructuring offer will not change in any shape or form, he said, adding that Mashreq’s attempt to creat a new class of creditors has failed.
Mashreq had also requested that fellow UAE lender Emirates NBD (ENBD) be classed separately by the Courts on related party grounds: Sheikh Ahmed Bin Saeed Al Maktoum is the chairman of both Dubai World and ENBD.
Mashreq, one of the original banks to Drycocks’ term loan, like NBF, does not think it should be subjected to a write-off, and opposes to some of the funds- which bought the debt in the secondary market at a cheaper price- being treated pari passu.
Mashreqbank’s lawyers brought forward Shariah arguments of righteousness, even though the debt is conventional and governed by English law.
Mashreq holds most of the outstanding NTL and PPL debt – some 11%. NBF only holds around 1% across both instruments. NBF has not yet presented its arguments. Both lenders are cross holders and are objecting to their treatment over the senior debt holding, not the junior, said the first source.
Drydocks, a UAE-based shipyard part of the Dubai World complex, secured a restructuring deal with creditors funded by a USD 225m injection by DP World, which will receive 100% of the company’s equity following the transaction, as reported.
More than 75% of Drydocks World debt holders, across both tranches, are international lenders, as reported. This includes a large number of international funds – a rarity in Middle East loan situations.
Mashreq is represented by King & Wood Mallesons, DWF is acting for NBF, while Clifford Chance is the legal counsel to Drydocks. The Dubai World Tribunal is chaired by Sir Anthony Evans. Its members comprise Michael Hwang, SC, Sir John Murray Chadwick and Sir David Steel.
Under the proposed restructuring deal, junior PPL debt holders will be cashed out at 22.85 cents on the dollar.
Senior NTL debt holders will receive reinstated senior debt, with the option to choose between a three-year or five-year tranche carrying margins of 200bps and 250bps respectively. Senior lenders will also receive an extension fee of 1% of their nominal senior holdings for rolling into the new loans.
The new three-year tranche features an early repayment incentive whereby, if it is repaid by end-December 2018, 98.5% of the balance will be repayable. Conversely, if repayment is after end-December 2019, repayment will be 102% of the outstanding value of the debt.
Creditors of both classes will receive an early-bird consent fee of 30bps for agreeing to the lock-up agreement.
The institutional bank group (IBG) which steered the restructuring process from the creditor side consisted of Davidson Kempner, Emirates NBD, Goldman Sachs ESSG and Mashreqbank.
The IBG is advised by Moelis and Allen & Overy as financial and legal advisors respectively. The company is advised by Citi and Clifford Chance as financial and legal advisers respectively.
Drydocks has been embroiled in long-running restructuring talks, spanning two years. The company made a first proposal to its creditors under the current restructuring efforts back in 2015. This was later rejected.
Drydocks, Citi and Moelis declined to comment. National Bank of Fujairah did not reply to a request for comment, while Mashreqbank could not be reached.
by Elias Lambrianos in Dubai