Dana Gas forced into rethink on Islamic bond restructure

Dana Gas wants to make prepayments under the new sukuk without any penalty, which will help to give an early paydown to bondholders.

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Dana Gas is looking to new avenues to restructure its Islamic bond after discovering the instrument is no longer compliant with UAE religious law, the company said yesterday.

The move comes after the Sharjah-based operator has been pushing to shore up cash flow amid outstanding payments from Egypt and the Kurdish region of Iraq. Dana Gas has been toying with restructuring its US$700 million sukuk for several months, but only made inroads to begin negotiations last month when it announced that Houlihan Lokey would be its financial adviser, while appointing Squire Patton Boggs as the legal adviser.

The company’s chief executive, Patrick Allman-Ward, has said the company simply needed time to deliver fully on its pot­ential while conserving cash so that it can realise the full value of its assets.

However, Dana Gas now says it cannot pay the next two instalments, slated for the end of July and October, as a result of the existing sukuk being “deemed unlawful”.

The company said that the bond restructuring was necessary “due to the evolution and continual development of Islamic financial instruments and their interpretation … The new instrument would represent a fundamental improvement to the current situation for holders as it would be enforceable and would provide repayment to holders over time.”

The new proposal outlined by the company would have a sukuk with a four-year tenor and confer rights to profit distributions at less than half of the current profit rates. It would also be without a conversion feature and new profit payments will include a cash and payment-in-kind element.

Dana Gas wants to make prepayments under the new sukuk without any penalty, which will help to give an early paydown to bondholders.

Sanyalak Manibhandu, the head of research at NBAD Sec­urities, said that the unlawful sukuk news is a way to encourage stakeholders to come to an agreement. “The conversation going on is only about what the company is proposing, holders can propose a counter and it may go on for weeks – but at the end, both sides have to agree,” he said.

And to meet in the middle, sukuk holders may see the same sort of payouts as in the firm’s first restructuring negotiations in 2012.

At that time, holders received a paydown of $70m up front to get both sides to agree on the restructure. Mr Manibhandu believes this time around would be the at least the same and up to $100m.

The Abu Dhabi-listed company’s shares have jumped by more than 50 per cent since start of the month to 69 fils at the close yesterday.

While Dana Gas has received substantial payments from Egypt over the past month, in addition to the latest news on the sukuk, Mr Mr Manibhandu said the spike was something of a mystery. “I don’t think the sukuk tells you everything,” he said, adding that perhaps there was other money sitting on the sidelines or the company has simply captured the imagination of investors.

However, he said there is unlikely to be a substantial change in fundamentals. And once investors realise this, there will be a “sell off in equity and that’s the danger”.


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