Drydocks World Considers Major Restructuring, Possible Sale of Southeast Asian Operations

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February 7, 2012

DUBAI (Dow Jones)–Drydocks World, Dubai’s shipyard arm, is considering the sale of its entire Southeast Asian ship-building and repair operations in an effort to advance the restructuring of $2.2 billion of the company’s debt, three bankers familiar with the situation said.

The bankers said that auditors have conducted an analysis of the Asian assets and are currently reviewing a wide range of candidates interested in purchasing some or all of the operations. They said that Drydocks is preparing to draw up a shortlist of potential bidders, which include ship repair and ship building specialists.

“The company is pursuing a sale of the Southeast Asian business, there are plenty of candidates that have expressed an interest,” said one of the bankers familiar with the talks. Drydock’s Asian operations consist of four shipyards in Singapore and Indonesia, specializing in rig building, shipbuilding, repair and conversion.

In a statement, Drydocks didn’t comment specifically on whether it plans to sell its Southeast Asian business but said it “will continue to explore opportunities and seek to develop the best path forward to its operation.”

“The company has said and from inception that it will re align and rationalize its operation,” the Drydocks statement added.

Drydocks purchased the Southeast Asian assets in 2007 for about $2.2 billion, backed by financing from a wide syndicate of local and international banks. Drydocks, like a number of government controlled companies in Dubai, borrowed heavily to purchase assets just before the onset of the global financial crisis in 2008. Though its shipyard in Dubai has been thriving, the performance of the Asian businesses has been disappointing, bankers said.

Talks on restructuring the company’s debt have been underway since mid-2010, but progress has been slow. Last year, the Dubai government turned down a request that it provide a guarantee for the debt.

HSBC, Standard Chartered, Lloyds TSB, ING, DBS and Mashreq are the members of a coordinating committee leading the restructuring talks, one of the bankers said, while McKinsey is acting as an advisor to Drydocks.

Bankers said that the sale of the Southeast Asian assets would provide cash to help pay back the Drydocks debt, but it could also raise difficulties in that the company is likely to only get only a small fraction of what it originally paid for the assets in any sale.

The company and its bankers would need to discuss how to bridge the gap between what it can fetch for the Asian business and the original purchase price, the bankers said.

Moreover, valuing the Southeast Asian assets is complicated because potential bidders have signaled interest in different parts of the business. It is also hard to assess the value of the vessels that are currently under construction in the company’s Southeast Asian shipyards, they said.

But a sale of the Asian business, while far from certain, would mean the company’s focus will shift again to the Dubai-based shipyard, which is considered much more commercially viable and therefore could gain easier access to funding for now and once the debt restructuring talks are completed.

Drydocks is a ship-building and repair company based in Dubai and owned by Dubai World, which in turn is controlled by the government of Dubai. Dubai World finalized a $25 billion debt restructuring in 2011 that didn’t include Drydocks.

Drydocks chairman Khamis Juma Buamim was quoted in December as saying that the company hopes to complete a deal on its debt restructuring by the end of March, and is considering joint ventures in Asia to improve the business.

But bankers said that a complete sale of the assets is now the company’s priority. “Establishing joint ventures is still the way forward in the scenario a sale doesn’t materialize,” said one of the bankers familiar with the talks.

-By Nicolas Parasie, The Wall Street Journal

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