Dana Gas PJSC, whose bondholders include BlackRock Inc and Ashmore Group Plc, completed the restructuring of $920 million of Islamic bonds after agreeing to pay twice the average yield on emerging markets corporate sukuk.
Dana Gas, which missed sukuk payments in October, will pay bondholders $70 million in cash and split the remaining Shariah-compliant debt into $425 million of convertible bonds and an ordinary sukuk of equal value, the United Arab Emirates fuel producer said in a statement. The five-year convertible bonds will pay a profit rate of 7 percent and the ordinary sukuk 9 percent. That compares with 7.5 percent on the existing sukuk.
“It’s positive for the creditors because there is no reduction in the principle amount and the process was done relatively quickly,” Abdul Kadir Hussain, chief executive officer at Mashreq Capital DIFC in Dubai, said by phone. “The cost is fair because this is a company that went into forced restructuring and so it should pay more than the market average.”
Dana Gas was forced to restructure the debt after political instability in Egypt and Iraq’s Kurdish region, where the company produces most of its gas, led to payment delays. The company reported a 27 percent decline in third quarter profit to $29 million and 12 percent drop in net revenue.
The average yield on emerging company sukuk dropped to an all-time low of 3.09 percent on Dec. 7, HSBC/Nasdaq Dubai’s Corporate U.S. Dollar Sukuk Index shows. The yield on Dana Gas bonds dropped 197 basis points, or 1.97 percentage points in November, the biggest monthly decline in more than three years, to 9.56 percent after the company reached a preliminary deal with bondholders, according to data compiled by Bloomberg.
Dana Gas will enhance the collateral on the new sukuk by $300 million, including money owed to it for gas produced in Egypt and certain U.A.E. assets, it said. The company will also have the option to pay down the outstanding securities prior to their maturity on Oct. 31, 2017.
The convertible sukuk will be exchanged for shares at a 50 percent premium to the 75-day volume-weighted average price starting Dec. 1. The conversion price will not to be lower than 75 fils or higher than 1 dirham, nearly half the old conversion price of 1.93 dirhams a share.
The potential dilution for shareholders “remains substantially similar” to the existing terms, according to the statement. Dana Gas will call a shareholders meeting in the first quarter of 2013 to approve the revised terms and expects the transaction to be completed by the second quarter. The ad-hoc committee of sukuk holders, which included BlackRock and Ashmore Group, hold a majority of the sukuk and will vote in favor of the deal, it said.
“The company’s liquidity constraints were caused by well-known external factors,” and the revised sukuk terms place the company on track for growth, acting Chief Executive Officer Rashid Al-Jarwan said in the statement. Dana Gas will explore the international listing of its upstream assets in due course, it said.
Deutsche Bank AG, Blackstone Group LP and Latham & Watkins LLP advised Dana Gas on the restructuring, while Moelis & Co. and law firm Linklaters LLP represented sukuk-holders.