Investors in Dana Gas PJSC’s Islamic bonds are weighing how much credence to give company assurances that its Iraqi output is secure from the sectarian violence ripping through the nation.
The gas producer’s October 2017 callable sukuk fell for seventh day at 12:31 p.m. in Abu Dhabi. It yesterday erased gains after Dana Gas said in a statement on its website that operations in the Kurdish region of Iraq haven’t been interrupted and all facilities and people are safe. The yield on the notes last week jumped 43 basis points, the most since November, compared with a four basis-point average increase for Middle East sukuk, according to JPMorgan Chase & Co. indexes.
The company is a partner in two Iraqi gas fields, which accounted for 53 percent of its first-quarter revenue and are less than 100 miles from Kirkuk, where Kurdish forces are facing the breakaway al-Qaeda group Islamic State in Iraq and the Levant. Dana Gas shares fell 13 percent this week through yesterday as the country’s Prime Minister Nouri al-Maliki battles to wrest control of some northern cities from the militants.
“There’s been a very negative sentiment in general for companies who have assets in Iraq,” Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG, said by phone yesterday. “Disruption has not been reported in the Kurdistan area, but investors are getting concerned and we may see further volatility.”
The yield on the callable sukuk added 23 basis points to 9.06 percent yesterday, according to data compiled by Bloomberg. Dana Gas’s convertible notes with a matching maturity jumped 269 basis points as the shares fell to 72 fils, the lowest close since December. The stock gained 4 percent today in Abu Dhabi.
“There’s obviously heightened concern given there is uncertainty in the neighborhood,” Robinder Singh, Sharjah-based investor relations director at Dana Gas, said by phone yesterday. “Kurdistan itself appears to be unaffected by the situation. We’re monitoring closely and ensuring our people are safe and sound.”
Kurdish troops, known as peshmerga, pushed outside their semi-autonomous enclave in northern Iraq to protect the nation’s fourth-biggest oilfield, Jabbar Yawar, Peshmerga Ministry secretary-general, said in an interview in Erbil yesterday. They now control all energy facilities and oil deposits in the Kirkuk area other than a refinery in Baiji, Yawar said.
Majid Jafar, a Dana Gas board member and chief executive officer of its main partner in Iraq, Crescent Petroleum Co., yesterday told Bloomberg Television natural gas production in the country’s semi-autonomous region is running normally.
Prime Minister al-Maliki, a Shiite, is fighting to reverse the advance of the Sunni Muslim militants, who captured Iraqi’s largest northern city and other towns last week. Their advance, and Maliki’s call on citizens to carry arms, have left OPEC’s second-largest oil producer on the verge of civil war three years after the U.S. pulled its forces from the country.
“It’s reported they’re controlling Mosul, which is not far from the Kurdistan region,” Montasser Khelifi, senior manager for global markets at Quantum Investment Bank Ltd. in Dubai, said by phone yesterday. “Investors see a risk of this group progressing in the country, though for now Kurdistan is on the sideline.”
Dana Gas faces other challenges in Iraq. The company is in arbitration proceedings with the Kurdish Regional Government in the London Court of International Arbitration, along with its partners Crescent and Pearl Petroleum Co. The gas producer was owed $583 million from the Kurdish region at the end of the first quarter, it said in May.
The company is also struggling to obtain payments from its operations in Egypt. It was owed $278 million from the most populous Arab nation at the end of March, according to first-quarter results.
“The Iraq fighting is the driving factor at moment,” Commerzbank’s Bantis said. “The rest is in the background.”