Monarch Capital has won a judgment against Dubai’s Drydocks World for last year’s debt default, in the first high-profile case of a Dubai state company being successfully pursued overseas for its debt.
The US hedge fund, which holds $45.5m of the Dubai ship repair company’s debt, took the case to the UK high court. Last week Drydocks World said it had presented a plan to lenders to restructure $2.2bn in loans and extend repayments over five years.
The subsequent court ruling marks the first time that a Dubai debt-related dispute has been pursued through international courts, and opens the path for Monarch to start further legal action against Drydocks and attempt to recover its money through confiscation of the assets of the Middle East’s largest repair yard.
A copy of the judgment has yet to be made available, but both sides confirmed that Monarch had won the case at London’s commercial court.
A Monarch spokesman said: “We are pleased with the judgment and fully confident in our position.”
Khamis Juma Buamim, chairman of Drydocks World and Maritime World, confirmed the judgment, but said the company would press ahead with its restructuring plan.
“The company is confident that it can still implement its restructuring if it transpires that Monarch do not accept the terms on offer, but I would very much hope that notwithstanding their legal action Monarch will accept the very reasonable restructuring proposal,” he said in an emailed statement.
People aware of the matter say the US hedge fund will face challenges in recouping the money.
Enforcement of overseas rulings in Drydocks’ home jurisdiction of Dubai are rare, with uncertain outcomes and lengthy proceedings.
“I think that the judgment went in favour of Monarch is not in itself a surprise and highlights the legal risk that the restructuring of Dubai debt, even on the bank side, entails when claims are able to be pursued in foreign jurisdictions,” said Farouk Soussa, Middle East economist at Citigroup.
“However, whether this legal risk has a material economic impact will depend on the ability of funds such as Monarch to enforce their claims, which is much more uncertain.”
Advisers to Drydocks World say the result was expected, and presented only a moral victory for Monarch, which now has to enforce the ruling.
Most analysts remain convinced that Monarch is hoping for early repayment in full of its debt holding as the company starts to make progress toward restructuring its loans.
“It is clear that Monarch will not be party to the restructuring as proposed by the company,” says Ahmad Alanani, senior executive officer at Exotix, the frontier markets investment bank. “It will be interesting to see if their position influences other creditors to walk out before the target closing of June.”
Another hedge fund used a similar strategy during the $25bn restructuring of Drydocks’ parent Dubai World, persuading it to speed the restructuring process that was causing shockwaves through the Gulf.
Drydocks was not included within Dubai World’s debt restructuring, which called for lenders to extend maturities held by the troubled conglomerate, giving the government holding company up to eight years to pay back debt by selling assets.
Late last month, Drydocks said it had proposed to lenders to repay the $2.2bn loan over five years, in a proposal that echoed the deal struck by its parent company.
The $2.2bn facility, taken out in October 2008, consists of a $1.7bn three-year loan and a five-year $500m tranche, with members of the co-ordinating committee of banks including HSBC and Standard Chartered.
Drydocks World raised the loans to fund expansion into south-east Asia, but its lossmaking operations in Singapore have underperformed since the financial crisis struck.
Shipyards in Singapore and Indonesia could become part of the portfolio of assets hunted down by debt collectors, say analysts.
Another option would be to attach the UK court ruling to financial receivables to the company, such as monies owed by international companies to Drydocks for its ship-repair services. Alternatively, Monarch could seek to confiscate raw materials paid for by Drydocks.
Mr Buamim says Drydocks’ core business is performing well as Dubai’s trade- and tourism-focused economy bounces back after the financial crisis and the emirate rediscovers its status as a haven from regional political turmoil.
The company made a profit of $116m in 2011, with expectations of a 15 per cent rise this year.
“Business is booming,” he said.
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