Debt and equity investors are continuing to punish Abu Dhabi-listed Dana Gas for weak receivables and seeming rudderlessness over a looming $920 billion bond refinancing.
The company’s share price has slumped 40% in the last year, despite growing revenues, production and profits, as realization dawned on the region’s debt markets that Dana would be unlikely to be able to cover the 7.5% $920 million sukuk (Islamic bond) when the capital comes up for repayment on 31 October 2012.
The largest independent gas company in the Middle East has consistently posted healthy notional profit and revenue. In the company’s first quarter results, disclosed yesterday, first-quarter net profit was AED 206 million ($56.08 million), compared with AED 92 million for Q1 2011. Net revenue rose 19.2% to AED 572 million. The Company’s net production averages 63,000 barrels of oil equivalent per day from Egypt and the Kurdish region of Iraq.
However, the firm has only received part of its booked revenues, as political issues in Egypt and Iraqi Kurdistan have seen gas payments held back. The company is currently owed around $500 million for gas it has provided to the two countries.
Majid Jafar, CEO of Dana’s parent company Crescent Petroleum, remains upbeat. “We continue to have constructive discussions with both the Government of Egypt and the Government of the Kurdistan Region of Iraq on payment of Company’s receivables,” he said.
Markets have already priced in a bond default, with the prevailing yield on the sukuk currently at over 92%. According to Dana Gas, the Sukuk is secured against “certain Egyptian assets as well as SajGas and UGTC,” though bondholders are likely to renegotiate repayment with Dana rather than enforce their contractual right to the sale of Dana’s secured assets to be repaid.
Bloomberg reports that investors in Dana Gas’s debt have already lined up global finance law firm Linklaters to manage any negotiations. Dana has hired Deutsche Bank and private equity firm Blackrock to advise on the bond, and US law firm Latham & Watkins to advise on legal issues.
Dana Gas finally spoke to the issue yesterday – having ignored the sukuk in its previous statement to the Abu Dhabi Stock Exchange – in terms which strongly suggest that the company has given up on its previous insistence that creditors will be paid in full.
“Although the economic realities outlined above affected Dana’s ability to raise new funding, the Company is committed to finding a consensual solution that is equitable to all stakeholders,” said Dana in a company statement yesterday. “For these purposes, the company has appointed Deutsche Bank, Blackstone Group and Latham & Watkins as its financial and legal advisors to advise on various options for discussions with the sukuk holders and their advisors.”
Dana has still given markets no clue as to how it will repay its debt – whether in whole or to a satisfactory degree in part – saying only that it will “provide further updates as further progress is made.”
The situation has raised fears among investors that Dana Gas could be the first major company in the region to default – wholly or partly – on its debt obligations under a traded bond.
The company’s Kuwaiti CEO, Ahmed Al Arbeed, is retiring in September. Dana is searching for a replacement.
