Dana Gas $1bn sukuk a source of angst

Dana Gas, the UAE company whose share price has crashed on doubt over its ability to meet debt obligations, has hinted it will seek to refinance its troublesome US$1bn sukuk.

The UAE company Dana Gas, whose share price has dropped sharply on doubt over its ability to meet debt obligations, has hinted it will seek to refinance its troublesome US$1bn (Dh3.67bn) sukuk.

The gas producer based in Sharjah released strong first-quarter results yesterday and used the occasion finally to address concerns over the bond, which matures at the end of October.

“The Company is committed to finding a consensual solution that is equitable to all stakeholders,” Dana said in its earnings release.

Net income more than doubled to Dh206 million on the final quarter of last year, while revenue increased by 14 per cent to Dh700m.

Dana attributed the increase in profit to higher prices for its gas but acknowledged that collecting its receivables had been hindered by political factors in Egypt and Iraqi Kurdistan, where it holds the bulk of its assets. This leaves the company’s cash balance at only Dh524m.

“Dana Gas’s cash flow has been impacted by global macroeconomic and regional events,” said the statement.

Majid Jafar, the chief executive of Dana’s parent company, Crescent Petroleum, said on Monday that Dana’s largest shareholder would not help to pay off the bond, making it even more unlikely that the company would be able to repay its debt.

“The question now is not whether they will restructure the sukuk, but what the terms are going to be,” said Gus Chehayeb, the director of Mena research at Exotix,which has a sell recommendation on Dana’s sukuk.

Market participants believe that bondholders can be persuaded to accept a rolloverrather than forcing a default that could result in a sell-off of company assets to meet obligations.

Amid concerns over the company’s ability to repay its debt, its share price declined by 40 per cent last year. The stock rose slightly to close at 40 fils on Tuesday.

The yield of the sukuk surged by 55.7 per cent since the start of the year to close at 92.41 per cent yesterday.

Mr Chehayeb believes that the most likely outcome is that the debt will be rolled over for a further five years.

“They need a lot of breathing room for things to settle down in Kurdistan and Egypt in order to finally receive payments for those projects,” Mr Chehayeb said.

Dana Gas produces 34,500 barrels of oil equivalent per day in Egypt, and 28,500 barrels in the semi-autonomous Iraqi region of Kurdistan.

Since the removal of Hosni Mubarak as president last spring, Egypt’s government has failed to keep up with payments to companies producing gas in the country. Similarly, a dispute between the Kurdistan Regional Government and Baghdad over the validity of oil and gas production contracts in Kurdistan has stopped payments by the central government, and since April has led the Kurds to stop exports.

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