Dana Gas PJSC rose the most in almost a month as the fuel producer pursues a so-called standstill accord with holders of its overdue Islamic bonds and investors bet the company’s debt won’t be converted into equity.
Shares of the Sharjah, United Arab Emirates-based company gained 2.5 percent, the most since Oct. 10, to 41 fils at the close in Abu Dhabi. The stock fell 4.8 percent the prior two trading days as Dana Gas failed to give details on its plans for the almost $1 billion of 7.5 percent debt that matured Oct. 31.
Dana Gas sold the convertible sukuk in 2007 with the option for investors to exchange the notes for shares at 1.926 dirhams. The stock slumped 77 percent since the end of that year, including an 8.9 percent drop in 2012, partly because the gas producer faced payment delays due to political instability in Egypt and Iraq’s Kurdish region, its primary sources of revenue. Shareholders were concerned that some of the debt would be converted into equity, thereby diluting their holdings.
With a share price below 1 dirham, it isn’t “structurally possible” for the sukuk to be converted, said Yazan Abdeen, who helps oversee about $250 million as ING Investment Management’s Middle East and North Africa fund manager in Dubai. “As long as there is no equity dilution risk, then the possible scenarios that are present at the moment are aligned with the interest of the equity holders.”
The company and a committee of bondholders “are currently negotiating the necessary standstill and lock-up agreement which the parties are working together to conclude soon,” Dana Gas said today. Under such accords, creditors agree not to make an effort to collect debt payments or claim assets backing a security.
Dana Gas was the most traded by volume on Abu Dhabi’s benchmark ADX General Index, which rose 0.5 percent.
The missed deadline spurred concern holders of the debt may attempt to seize the company’s assets in Egypt. The bonds, which comply with Islam’s ban on interest, are secured against assets in the North African country, as well as Dana Gas’ Sajaa Gas Private Ltd. and United Gas Transmissions Co. units.
Bondholders need to confirm whether they want the trust holding the assets backing the notes to be dissolved, Dana Gas said yesterday.
“As part of these convertible sukuks, investors have the right to convert them to equity, but as the conversion price is much higher than the market, they will probably decline,” said Mohammed Ali Yasin, managing director of Abu Dhabi Financial Services Co., the brokerage unit of National Bank of Abu Dhabi PJSC. “This is part of the negotiations, in my mind, and the unwinding of the sukuk, which could also mean that we are closer to successful negotiations of re-financing the majority of that debt.”
Five analysts recommend investors buy the Dana Gas shares while two have a hold rating on the stock, according to data compiled by Bloomberg.