Dana Gas shares take a beating over debt

Markets Update: Uncertainty over refinancing has extended Dana Gas share price decline.

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Dana Gas posted its biggest drop in more than a week after the company failed to provide details on how it plans to repay US$1 billion due in October.

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The shares fell 2.2 per cent yesterday in Abu Dhabi, closing at 44 fils, their biggest decline since December 27. The stock slumped by 38 per cent last year. Dana, a subsidiary of the UAE oil and gas company Crescent Petroleum, said yesterday that its board had considered updates on financing projects in Egypt and the UAE at a meeting on Wednesday.

Dana said the board had also discussed updates on the company's stake in the Hungarian refiner Mol Nyrt, without giving further details.

The Hungarian refinery has added to investor concerns. Affected by a European trend of low refinery margins, Mol has been underperforming for some time. Margins have further deteriorated in recent months.

Worries about Dana's ability to refinance have been lingering in the market for a while, leading to analysts reducing their target price for Dana shares.

"The main risk to our valuation lies in Dana's ability to refinance its convertible bond due October 2012," the Dubai investment bank Rasmala said in a November report. "Although we believe Dana should be able to refinance the bond, in the absence of a clear plan from the company, we believe upside to the stock will be limited."

Dana's financial situation has been aggravated by receivables problems in Egypt. The lack of payments there has led the company to scale back its capital expenditure plans in the country, in turn resulting in a reduction in drilling activity.

Dana's production in Egypt has consequently declined and is predicted to fall further.

The combination of factors led Rasmala to reduce its target price for Dana to 81 fils per share from 94 fils per share. In the space of less than two months, that forecast has been proved to be much too optimistic.

* with Bloomberg News

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