Dana Gas takes tough line with injunction in bondholder talks

Dana Gas has taken an aggressive stance in talks with bondholders as it seeks better terms on $700m in bonds it cannot pay off on time this year.

Dana Gas is taking a tough line at the start of negotiations with bondholders with the unusual step of securing a court injunction to stave off a declaration of default.

The Sharjah-based gas operator, which is 19 per cent owned by the Jafar family’s Crescent Petroleum, said it had won an injunction issued by the Sharjah Federal Court of First Instance, which restrains “the trustee, the delegate, the principal security agent and the Egyptian security agent under the sukuk from taking any action, inside or outside the United Arab Emirates, to enforce against any of the securities of the company”.

The move follows a day after Dana Gas management were scheduled to have their first call with holders of its bond issues totalling US$700 million, having informed them beforehand that it “recently received legal advice that the sukuk in its present form is not Sharia-compliant and is therefore unlawful under UAE law”.

By securing the injunction the company is looking to avoid a repeat of the last negotiations in 2013 when bondholders declared technical default and wrenched favourable terms on the two outstanding bonds: $350m 9 per cent ordinary certificates; and $350m 7 per cent exchangeable certificates, each due in October this year.

The 12-year-old company, which describes itself as “the first and largest regional private sector natural gas company”, is listed on the Abu Dhabi Securities Exchange (ADX). Its two main assets are gas exploration and production interests in Egypt and the Kurdish region of Iraq, both of which have been bedevilled by erratic payments by the respective governments, and in the latter case a long-running contract dispute.

Dana Gas has been receiving regular payments from the Kurdish Regional Government (KRG) for over a year and payments from Egypt have resumed in the second half of this year after stalling. It also has won a series of international arbitration court decisions in its favour that it hopes to resolve with the KRG so that it can recover a substantial portion of the courts’ award so far, which already is above $1 billion.

But the erratic payments have left it short of cash, requiring it to restructure the bonds. While Dana Gas could now force bondholders to take a “haircut”, it would prefer to renegotiate terms for a rollover in a different, “legal” Sharia-compliant form at lower interest rates, said a source who is familiar with management’s thinking but declined to be named.

Dana Gas is being advised by Houlihan Lokey, a restructuring specialist, and law firm Patton Boggs.

The bondholders, the largest of which is Blackrock Advisors, are represented by a unit of Moelis & Co investment bank and the law firm Weil Gotshal & Manges. None of the bondholders representatives were available for comment.

Dana Gas shares have soared by 66 per cent in the past few weeks, from near a historic low of 41 fils per share to 68 fils, an increase that has puzzled some analysts.

Salma Kharbachi, an analyst who follows the company for the Tunis-based AlphaMena brokers, has downgraded the firm twice in the past few weeks, most recently to “sell”.

While she says the recent Egyptian payments were positive, the unexplained spike in the share price has far exceeded her price target.

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