DUBAI: The United Arab Emirates’ Dana Gas failed to repay a $920m Islamic bond on maturity, prompting a source close to holders of the bond to say they will stake claim to the natural gas producer’s extensive Egyptian assets.
Dana, a leading Middle East natural gas company, said yesterday that it was in talks with bondholders to amend and extend the terms of the bond, or sukuk, after it became the first firm from the UAE not to repay a bond on maturity.
But a source close to the creditors said Dana sukukholders are determined to go after the assets used to back the issue. “Bondholders will now pursue an enforcement of Egyptian assets and pursue their unlimited recourse $1bn claim against Dana Gas PJSC,” the source said, declining to be named.
Dana has operations in Egypt and Iraq, is listed on the Abu Dhabi stock exchange and is headquartered in the emirate of Sharjah. The Abu Dhabi bourse suspended Dana shares on Thursday, pending clarification on the Islamic bond.
Although indebted firms in the state have extended maturities on billions of dollars in bank loans since the onset of the world financial crisis of 2008-09, no sukuk have been restructured or unpaid on maturity.
There are very few private corporate bonds or sukuk outstanding in the UAE, as most issuance has so far been from the state, or state-linked entities, and financial institutions. Other bonds and sukuk in the Gulf Arab region did not appear to be affected by the non-payment of Dana’s sukuk.
Islamic finance, launched in its modern form in the 1970s and estimated to have global assets of over $1 trillion, offers investments that comply with Islamic law which bans interest or investing in industries that involve gambling or alcohol. Sukuk are one of Islamic finance’s highest profile products.
Some in the industry claim sukuk are safer than traditional bonds because they are effectively certificates of ownership in a real asset and not pure debt. The Dana saga is not expected to have any significant impact on sukuk issuance or prices because the firm, a relatively small one compared to other issuers, is seen as a special case not representative of Gulf economies which are growing strongly.
Dana, which is privately owned, is not seen as a strategic entity for the UAE so any government support is unlikely.
“We haven’t seen any major contagion in the Gulf bond and sukuk markets from this news. Frankly, institutional investors appear to be taking this in their stride,” Chavan Bhogaita, head of markets strategy at National Bank of Abu Dhabi, said.
Dana has a three-day grace period to make the payment but “appear unlikely to do so,” the source added. The UAE’s largest listed natural gas firm, hit by payment delays from Egypt and Iraq’s Kurdistan region, said it had also missed an $18.75m accrued profit payment due on October 30 on the five-year sukuk, issued with a 7.5 percent coupon. It had repurchased $80m of the $1bn bond in 2008.
Reuters
