Bloomberg News

Dana Still Cheap After 30% Surge as Cash Rolls In: Arab Credit

February 06, 2013

Dana Gas PJSC’s Islamic debt, which posted its best three-month rally since 2009, may be set for further gains after profit rose and the company collected overdue payments in Egypt and Iraq, its biggest revenue sources.

Yields may contract further as credit risk recedes after a debt restructuring and Dana continues to receive cash from the two countries, said Gus Chehayeb, director of Middle East and North Africa research at Exotic Ltd. and Emad Mostaque, a strategist at Noah Capital Markets. Delays in payments by Egypt and Iraqi Kurdish authorities forced Dana to renegotiate terms on nearly $1 billion of debt after it missed an Oct. 31 payment, prompting speculation creditors might seek to seize assets.

“Dana Gas has been catching up with the broader corporate bond rally in the GCC as it offers attractive nominal yields,” Mostaque said by phone Feb. 6. “Investors also now feel more comfortable about assets underlying the sukuk. It’s potentially undervalued post restructuring, although investors would want to see more progress on payments from Egypt and Kurdistan.”

The yield on Dana’s Islamic notes has fallen to 8.6 percent from 11.54 percent in the three months since the restructuring, while the company’s equity, traded on the Abu Dhabi stock exchange, has rallied 20 percent. The yield on the HSBC/NASDAQ Dubai GCC Corporate US Dollar Sukuk increased to 3.61 percent from 3.26 percent in the same period while the Abu Dhabi Securities Market General Index has gained 8.4 percent.

Cheaper Credit

Cheaper credit and faster growth in the United Arab Emirates economy are helping other borrowers renegotiate debt- payment terms, about four years after the global financial crisis throttled lending in the region. Since then, no U.A.E. company that asked lenders to restructure its debt has failed to secure the extension of debt maturities.

The U.A.E.’s economy is expected to expand 4 percent this year, Sultan Bin Saeed Al Mansoori, the country’s economy minister, said on Jan. 17.

Dana Gas, whose bondholders include BlackRock Inc (BLK:US). and Ashmore Group Plc, said on Dec. 10 that it restructured $920 million of its Islamic bonds, paying twice the average yield on emerging markets sukuk. 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.

Dana Gas was forced to restructure after payment delays in Iraq, where the central government and the Kurds are entangled in a feud over disputed land and the sharing of energy revenue. In Egypt, where political unrest ate up more than 50 percent of the government’s foreign-currency reserves, the company has also struggled to enforce the payment of debts in the country.

“The restructuring deal enhances Dana’s liquidity by extending maturities and we don’t foresee the company having any difficulty serving its interest payments in the near to medium term,” Kelly Yanjuan Huang, senior investment analyst at National Bank of Abu Dhabi, said in an e-mail on Feb. 5. “Improving cash balances and receivable collections increase the odds Dana will repay the full amount in five years’ time.”

Net Income

Dana Gas’ net income rose to $165 million in 2012, from $138 million the previous year after it collected $301 million from Egypt and Iraq’s semi-autonomous Kurdish region, the Sharjah, UAE-based company said on Feb. 3.

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. The company will have the option to pay down the outstanding notes before maturity on Oct. 31, 2017.

“The restructuring has advantages for both equity and debt investors” Exotix’s Chehayeb said in an e-mail on Feb. 5. “Dana Gas’ assets are valuable but need time to mature; they now have adequate time to realize their potential because the restructuring has given the company 5 years of breathing room.”

To contact the reporters on this story: Mahmoud Kassem in Abu Dhabi at mkassem1@bloomberg.net

To contact the editor on this story: Dale Crofts at dcrofts@bloomberg.net


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