Dana Gas PJSC (DANA) said it’s in talks for a so-called standstill agreement with bondholders after the United Arab Emirates fuel producer failed to pay almost $1 billion in Islamic debt on maturity last week.
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 in a statement to the Abu Dhabi bourse today. Under a standstill accord, creditors agree not to make an effort to collect debt payments or claim assets backing a security.
The missed payment spurred speculation debt-holders may try to seize the company’s gas fields in Egypt since the 7.5 percent sukuk are partly secured by them. Political instability in the North African nation and Iraq’s Kurdish region, Dana Gas’ biggest sources of revenue, led to payment delays this year. BlackRock Inc. (BLK:US), the world’s largest asset manager, and London- based Ashmore Group Plc (ASHM) together own more than 50 percent of the notes, according to a Dana Gas official who asked not to be named citing company policy.
“It would be surprising at the current stage for Dana Gas to have received formal notice that the creditors were moving to seize the underlying assets given the lack of a formal declaration of default,” Emad Mostaque, a London-based strategist at Religare Hichens Harrison, said yesterday. “It is likely a deal can be made to extend payment.”
The fuel producer, which is based in the U.A.E. emirate of Sharjah, missed the Oct. 31 deadline to repay the principal and interest on the convertible securities sold in 2007, amounting to $920 billion. Bondholders need to confirm whether they want the trust holding the assets backing the notes to be dissolved, Dana Gas said in a statement yesterday.
Dana Gas shares surged as much as 7.5 percent to 43 fils in Abu Dhabi on volumes almost four times the three-month daily average. The stock, which traded at 41 fils at the close in the U.A.E. capital, had fallen to the lowest level in almost two months yesterday. Abu Dhabi’s benchmark ADX General Index rose 0.5 percent today.
Shares of the fuel producer rose as investors bet the company’s debt won’t be converted into equity since the stock has plunged 77 percent since the end of 2007. The conversion price was set at 1.926 dirhams at the time of the sale.
‘Hands on Equity’
Still, sukuk-holders and the company may consider a debt- for-equity swap for part of the outstanding sum so that Dana Gas can reduce the absolute amount of debt it needs to repay, Chavan Bhogaita, head of the markets strategy group at National Bank of Abu Dhabi PJSC (NBAD), said by phone today.
“It isn’t inconceivable that bondholders like BlackRock and Ashmore may be looking to get their hands on some of the company’s equity, if they actually believe in the underlying business,” Bhogaita said. “Distressed debt investors often go into these situations with a view to being able to drive a restructuring and to have the potential to get their hands on some equity, if that is their objective.”
The other alternative would be to extend the entire amount for a certain number of years at a new coupon, Bhogaita said. A spokesman for BlackRock Inc. in London declined to comment when contacted by Bloomberg News today.
The company is negotiating with holders of the securities to alter the terms on the debt, including extending maturities, Dana Gas said Nov. 1. Third-quarter profit of the fuel producer fell 27 percent, missing an estimate of EFG-Hermes Holding SAE.
Dana Gas appointed Deutsche Bank AG, Blackstone Group LP and Latham & Watkins LLP to advise on the restructuring, while sukuk-holders hired investment bank Moelis & Co. and law firm Linklaters LLP.
In addition to the Egypt assets, Dana’s sukuk is secured against the company’s Sajaa Gas Private Ltd. and United Gas Transmissions Co. units, part of a venture to supply Iranian gas to the U.A.E. that hasn’t started yet.
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