BlackRock Secures Premium in Dana Gas Sukuk Revamp: Arab Credit

BlackRock Inc. and Ashmore Group Plc will receive a premium on their Dana Gas PJSC sukuk holdings after the fuel producer finished an agreement to revamp $920 million of Islamic bonds. Dana shares soared 10 percent.

Dana Gas, which missed sukuk payments in October, said yesterday it will split $850 million of debt into convertible bonds and an ordinary sukuk and pay creditors $70 million in cash. 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 original notes and a yield of 6.55 percent for the BofA Merrill Lynch All Maturity Global High Yield Index.

“The proposed restructuring terms are quite favorable for Dana Gas’ sukukholders as they ensure preservation of initial capital while also provide a small upside in pricing,” Apostolos Bantis, a credit analyst at Commerzbank AG in London, said by e-mail yesterday. “There is still value in Dana Gas’s assets and the company’s longer term prospects are positive.”

Dana Gas, based in the United Arab Emirates city of Sharjah, said this month it received $48 million from the Kurdish government in Iraq, one of two regions where payment delays forced the natural gas producer to restructure the debt. Egypt, where political unrest ate up more than 50 percent of the government’s foreign-currency reserves, has also been settling payments for current production, Dana Gas said.

Shares Jump

Dana Gas’s sukuk rose 2.4 percent yesterday to 80.07 cents on the dollar after dropping to a 2012 low of 67.87 cents Nov. 2, according to data compiled by Bloomberg. The yield on the notes plunged 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, the data show.

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 won’t be lower than 75 fils or higher than 1 dirham, nearly half the old conversion price of 1.93 dirhams a share.

The shares jumped 10 percent, poised for the biggest gain since December 2005, to 44 fils at 12:01 p.m. in Abu Dhabi, trimming this year’s decline to 2.2 percent. The benchmark ADX General Index has gained 9.1 percent in 2012.

More Collateral

“The terms of the debt restructuring are favorable to Dana Gas and its shareholders,” investment bank EFG-Hermes Holding SAE wrote in a report yesterday. “Crucially, the deal will not further dilute existing shareholders, beyond existing levels from the old sukuk and also gives little in the way of added security against the new debt.”

Dana Gas will boost 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 in yesterday’s statement. The company will have the option to pay down the outstanding notes before maturity on Oct. 31, 2017.

The agreement is “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 yesterday. “The cost is fair because this is a company that went into forced restructuring and so it should pay more than the market average.”

Still, Dana Gas’ ability to service and ultimately pay the debt back rests on whether it can successfully make its operations in Egypt and Kurdistan “fully cash generative,” he said. The company is still owed $200 million in Egypt from 2011, it said this month.

‘Good Development’

“It’s a good development that they were able to arrive at a resolution, but it’s not clear to me that they’re out of the woods and that they will be able to honor the terms of the restructuring in the long term,” Yaser Abushaban, director of asset management at Emirates Investment Bank said by phone yesterday.

Dana Gas reported a 27 percent decline in third quarter profit to $29 million and 12 percent drop in net revenue. Full-year profit may rise 12 percent to 565 million dirhams ($154 million) according to the mean estimate of five analysts on Bloomberg.

The gas producer 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, it said. The ad-hoc committee of sukuk holders, which included BlackRock and Ashmore, hold a majority of the sukuk and will vote in favor of the deal, it said.

‘Equitable Balance’

Ashmore press spokeswoman Gay Collins didn’t immediately respond to a voice-mail message. BlackRock spokesman Jonathan Mullen declined to comment. 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.

“The restructuring package provides an equitable balance of terms to both shareholders and creditors,” said Gus Chehayeb, Dubai-based research director for the Middle East and North Africa at investment bank Exotix Ltd. “The deal strikes a balance between both sides, which is important as shareholders still have to approve it.”

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