Dana Gas sukuk drop as maturity looms
$700m sukuk to mature in October but investors concerned about the company’s ability to repay
Some $700 million (Dh2.57 billion) in Islamic bonds issued by UAE energy firm Dana Gas are falling sharply in the secondary market because of investor concern about the company’s ability to repay the bonds maturing in October.
The cash price of Dana’s convertible sukuk, issued in May 2013 with a 7 per cent profit rate, has dropped about 3 cents on the dollar since the beginning of this year to 87 cents. That has boosted the yield to 26.32 per cent from 18.5 per cent at the beginning of January.
“The market is not assuming they’ll be able to repay in full, and the fact that the bond is yielding above 20 per cent demonstrates that,” said a Dubai-based holder of the bonds, declining to be named because of commercial sensitivities.
Cash and bank balance
The company had around $300 million in cash and bank balance at the end of 2016, according to its preliminary full year results — less than half the looming sukuk maturity.
Chris Hearne, chief financial officer of Dana Gas, told Reuters: “Whilst we have successfully grown reserves, production and asset value, we still face significant challenges with collections from Egypt and Kurdistan, and we have a billion dollars in undisputed receivables owed to us in total.
“Until these collections are realised, we must manage cash carefully and look for a solution for the sukuk that properly balances the interest of all stakeholders.” Dana has exploration and production assets in Egypt, the Kurdistan region of Iraq and the UAE.
This week Dana revised its unaudited preliminary results for 2016 to a net loss of $88 million from the net profit of $33 million which it had previously reported, citing the effect of a London court judgement on its overdue receivables.
In 2012, Dana became the first UAE entity to fail to repay a bond on time. That default eventually led to a consensual bond restructuring, which some analysts described as a sign of growing sophistication in the region’s debt market.
Investors are now wondering whether a second restructuring may be on the cards.