Dana Gas $1bn sukuk yield surges on debt repayment risk

Dana Gas PJSC’s Islamic bonds surged to a record after the company failed to provide details on how it plans to repay $1 billion of sukuk maturing in October.

The yield on the 7.5 per cent Shariah-compliant notes jumped 425 basis points, or 4.25 percentage points, to 44.6 per cent at 3:05 pm in Dubai. The price sank to 75.99 cents on the dollar. Dana Gas shares fell 2.2 per cent, the most in more than a week, to 44 fils after plunging 38 per cent last year.

The company’s board yesterday considered updates on its stake in Mol Nyrt as well as on financing projects in Egypt and the United Arab Emirates, Dana Gas said today, without giving further details. Dana Gas’s unlisted parent Crescent Petroleum Co owns 3 per cent of Mol, Hungary’s largest oil refiner, according to data compiled by Bloomberg.

“We would have expected something from the management on the refinancing of the sukuk,” Atul Gharde, a Hong Kong-based analyst at SJS Markets Ltd, said in an e-mail. “But times are difficult for them, especially since political tensions in Iraq and Egypt continue to negatively impact the company.”

Dana Gas, with most of its output coming from Egypt and the Kurdish region of northern Iraq, said in November it is in talks with banks for advise on refinancing the sukuk, financial strategy and plans to list the company’s exploration and production business on the London Stock Exchange. Islamic bonds comply with the religion’s ban on paying and receiving interest.

The sukuk is yielding more than 10 times the average rate on Islamic debt in the six-nation Gulf Cooperation Council, which includes Saudi Arabia and the UAE, the HSBC/Nasdaq Dubai GCC US Dollar Sukuk Index shows. The yield on the region’s debt rose one basis point yesterday to 4.28 per cent.

“We are still unable to see a repayment strategy using the company’s internal resources, which means that external financing is key," Abdul Kadir Hussain, chief executive officer at Mashreq Capital DIFC Ltd, said by phone interview. ‘‘We need a well enunciated plan by the company before buying it.’’

Sharjah, UAE-based Dana Gas is owed about $200 million by Egypt’s government related to natural-gas sales, Chief Executive Officer Ahmed al-Arbeed said in November. Unrest in Egypt last year led to the ouster of President Hosni Mubarak, draining 44 per cent of its foreign reserves and slowing economic growth in the fiscal year that ended in June to 1.8 per cent from 5.1 per cent.

Production in Egypt fell 4.6 per cent in the third quarter to the equivalent of 3.72 million barrels of oil, as it slowed drilling ‘‘in order to balance capital expenditure with the collection of accounts receivable,’’ Dana Gas said in November.