Dana Gas PJSC shares slumped the most in almost two years after the fuel producer failed to confirm whether it had reached a so-called standstill agreement with bondholders for $1 billion of sukuk due today.
The shares tumbled 8.9 percent, the biggest decline since January 2011, to 41 fils at the close in Abu Dhabi. The stock fell 2.4 percent this month after surging 11 percent in September. Dana Gas was the most traded by volume and the biggest decliner on Abu Dhabi’s benchmark ADX General Index, which was little changed.
The Sharjah-based company said today it’s in talks to reach a consensual solution to restructure the sukuk, without providing details. A person familiar with the talks, speaking on condition of anonymity, said yesterday Dana Gas reached a standstill accord this month, under which creditors make no effort to collect debt payments thereby preventing a default.
“Investors are disappointed with the way the management is handling things,” said Nabil Farhat, a partner at Abu Dhabi-based brokerage Al Fajr Securities LLC. “First they issue an ambiguous press release that basically said nothing and second they neither confirmed nor denied” yesterday’s comments, he said.
Political upheaval in Egypt and Iraq’s Kurdish region, the gas producer’s main sources of revenue, led to payment delays and squeezed Dana Gas’ cash position. The company had $393 million of cash and investments at the end of June, according to data compiled by Bloomberg. The stock, which lost 38 percent of its value last year, has declined 8.9 percent in 2012 compared with an 11 percent advance in the benchmark measure.
A standstill agreement is “not as bad as it seems” for shareholders as the company probably won’t face dilution, ING Investment Management said.
“The normal reaction to a standstill or anything close to default is to panic, dump and ask questions later,” Fadi Al Said, Dubai-based senior investment manager at ING, said by e-mail today. “Dilution was something equity holders were fearing, and it doesn’t look like it’s happening.”
Dilution implies downward pressure on a company’s equity ratio, earnings per share, and book value per share when additional stock is issued even though income hasn’t increased.
The agreement will be effective until one party decides to end it, the person said yesterday, asking not to be identified because the information is private. Bondholders and Dana Gas are close to reaching a final accord on new terms and payment to sukuk holders, if any, will be made thereafter, the person said.
Dana Gas’ debt is secured against its Egyptian assets as well as Sajaa Gas Private Ltd. and United Gas Transmissions Co., part of a venture to supply Iranian gas to the United Arab Emirates that hasn’t yet started. In case of a default, investors will have the right to stake a claim to these assets in an English court.
Five analysts recommend investors buy the shares of Dana Gas while two have a hold rating on the stock, according to data compiled by Bloomberg.