Crescent Petroleum Co., Dana Gas PJSC’s biggest shareholder, has no plan to provide cash to the United Arab Emirates-based natural gas producer to help pay a $1 billion Islamic bond due in October.
Any “speculation around Crescent injecting further capital to support the Dana Gas sukuk is incorrect,” Majid Jafar, Sharjah-based chief executive officer of Crescent, said in a phone interview yesterday. Dana Gas “is facing external macro-economic and political events outside its control” in Iraq’s Kurdistan region and in Egypt, which have led to unpaid bills, and “these are the economic realities that all the stakeholders need to take into account,” he said.
Concern that Dana Gas will default drove up yields on the 7.5 percent notes by 24 percentage points this month to 91.8 percent at 11:23 a.m. in Dubai, according to data compiled by Bloomberg. The company will be unable to repay the sukuk and there is high probability the liability will be reorganized, investment bank Exotix Ltd. said in a research note May 10.
Dana Gas, in which Crescent Petroleum holds a 20.1 percent stake, said in March customers owed $501 million to the company at the end of December, up from $255 million in 2010. Still, its profit advanced to $138 million in 2011 from $43 million the previous year, helped by higher gas production and prices. The company produces most of its gas in Egypt and Kurdistan and political upheaval in these regions have held up payments.
Dana Gas has “an excellent track record” and has boosted gas reserves, production, revenue and profit, Jafar said.
Investors in Dana’s sukuk hired Linklaters LLP to help negotiate a debt reorganization, three people familiar with the matter said May 8. The gas producer, whose chief executive officer plans to retire this year, hired Blackstone Group LP to advise on restructuring the Islamic bonds, three people familiar with the matter said in April. Deutsche Bank AG is also advising the Sharjah-based company, two people with knowledge of the matter said in January.
Dana Gas could default on the sukuk if creditors, which include some foreign investors and Dana’s management cannot agree on revised terms, Exotix said. It estimated a recovery value of 52 cents to the dollar in liquidation, while a restructuring may involve full principal payment in 5 years, or a partial upfront repayment in shares or cash with the remaining obligation extended, according to the investment bank.
“The large shareholders of Dana Gas, particularly the founders, have always been committed to the company,” Jafar said. “We haven’t reduced our holding, we have never received a cash dividend and Dana has always met its coupon payments.”