UPDATE 2-Indebted Drydocks sells stake in Asia operations

* Kuok company to take 60-70 pct stake in new venture

* Deal to close in third quarter

* Bought southeast Asia operations in 2007 for $2.2 bln

* Overseas assets have suffered during global slump

* New venture will need $600 mln in working capital (Adds details, comments, background)

By Praveen Menon

DUBAI, June 27 (Reuters) - Dubai's indebted Drydocks World has sealed a joint venture deal with a company backed by Malaysian billionaire Robert Kuok that could see the Asian firm buy as much as 70 percent of its southeast Asian business, sources said on Wednesday.

Drydocks, which sought insolvency protection in April as it restructures $2.2 billion of debt, said it would form a joint venture with Pacific Carriers Ltd, part of Kuok Group, to hold its southeast Asian shipbuilding and repair business. Financial terms were not disclosed.

Two sources close to the deal, who declined to be named because of the sensitivity of negotiations, said Pacific Carriers would take a 60- to 70-percent stake in the new company, DDW-PaxOcean Asia. The deal is slated to close in the third quarter this year.

Drydocks bought its southeast Asian operations, based in Singapore and Indonesia, in 2007 for about $2.2 billion. The debt which it is now restructuring stems from loans which it took out to fund that expansion.

While the company's Dubai arm has fared relatively well, its overseas operations suffered during the global financial crisis as the shipbuilding industry was hit by a slump in global trade.

"We are now focusing on how the company can bring its debt level down and keep going on," Drydocks Chairman Khamis Juma Buamim told reporters after announcing the deal.

Buamim said Drydocks' lenders, which include BNP Paribas , HSBC and Standard Chartered, had approved the plan for the new venture. Singapore's DBS Bank and Deutsche Bank advised on the deal.

Drydocks, part of state-linked conglomerate Dubai World , turned to a special tribunal in April to force creditors to sign up to its debt plan. It filed legal action in Singapore to push through the proposal.

HEDGE FUNDS

The company's restructuring, originally slated for completion in early 2011, has dragged on partly because of the presence of hedge funds, who have demanded more generous terms and brought legal action against Drydocks.

"The asset sale has been on for a while but we need to see clear progress on the restructuring process. How they intend to get hedge fund creditors in line will be the key here," said a Dubai-based banking source who declined to be identified.

"Given the state of the Asian assets, I will be surprised if they generated much value from it. It was always going to be a distressed sale."

Buamim said the new Singapore-based joint venture would need $600 million in working capital over the next three years.

Pacific Carriers, a wholly owned unit of Kuok Group, is a dry bulk operator with a fleet of product tankers and offshore support vessels. The new venture will complement its existing fleet and Kuok Group's two shipyards in China.

"I understand there were more bidders for this deal but they took a long time. We got this opportunity and I think it's good for both parties," Teo Joo Kim, Pacific's chairman, told reporters at a Dubai hotel, adding that his firm was not interested in increasing its stake.

"We are not buying for the sake of it. It has to add value."

Reuters reported on Tuesday that a firm linked to Kuok and Drydocks were close to a deal. (Additional reporting by Dinesh Nair and Saeed Azhar in Singapore; Editing by Amran Abocar and Andrew Torchia)