Mideast Bond Saga Set to End as Dana in Deal With Creditors

(Bloomberg) -- Almost a year of claims, counterclaims and litigation is beginning to wind down for Dana Gas PJSC bondholders, including BlackRock Inc. and Goldman Sachs Group Inc.

The Sharjah, United Arab Emirates-based energy company reached a deal with its key bondholders on restructuring $700 million of sukuk, avoiding protracted litigation in two jurisdictions and ending a dispute that fixated the Islamic finance industry.

A committee representing bondholders agreed on terms that offer two options to creditors, including one involving full repayment, the company said Sunday. Dana Gas and creditors also entered into an agreement to dismiss all pending litigation.

“The commercial terms reflect the pragmatic approach taken in order to avoid prolonged litigation over the parallel hearings,” said Rizwan H Kanji, a partner at law firm King & Spalding LLP in Dubai. This “does leave some food for thought as to how to further enhance documentation, if required, to address some of the arguments run by the parties.”

Deal Details

• The first option allows holders to tender their sukuk to the company at 90.5 cents to the dollar, including an early participation fee of 2.5 cents
• The second option offers an immediate payout of 20 percent of the face value of the existing sukuk, with the rest being rolled over into a new three-year wakala sukuk with a profit rate of 4 percent
  • Creditors will be paid accrued profit from May 2017 to October 2017 at the existing rate of 7 percent and 9 percent, and accrued profit of 4 percent from November to the securities’ close. They will also get a 2.5 percent early participation fee
• Dana Gas plans a general assembly in June to get shareholders’ approval for the deal, and expects completion by the first half of July
• Sukukholders representing more than 52 percent of the aggregate amount of the existing exchangeable certificates and more than 30 percent of the existing ordinary certificates have agreed on the terms
• Link to statement: https://bit.ly/2KX3LmD

‘Fair Deal’

“If one was looking at it as a fresh deal, 4 percent for 3 years at 0.3 times net leverage seems like a fair deal, and anyone who bought debt in the distressed market is doing well,” said Khalid Howladar, the founder and managing director of ratings advisory firm Acreditus. “In aggregate, the take-up is only 41 percent and you really need the consent of more than 51 percent for this to be credible and fair.”

Dana Gas has committed $335 million in cash to be used to fund as much as 25 percent of the sukuk from investors choosing option A, according to Arun Reddy, a managing director at Houlihan Lokey Inc., a financial adviser to Dana Gas. Cash will also be used to fund needs in option B, including for accrued interest, consent fee and 20 percent principal repayment at par, he said.

Any remaining cash will be used to buy new sukuk from the open market within a nine-month period or at par after nine months, Reddy said.

Two Courts

The troubles started a year ago, when Dana Gas announced it would restructure the notes due to delays in payments from Egypt and Iraq’s Kurdish region. A month later, the company said it received legal advice that its two $350 million mudaraba sukuk weren’t compliant with Islamic law and it would replace them with new securities yielding less than half the average profit rate.

Dana Gas then went to court over the issue, retracted its original offer, and couldn’t settle the sukuk when they matured in October. The company has had a string of rulings against it in the U.K. The British and U.A.E. courts also handed out conflicting orders on dividend payments.

“The proposed new sukuk instrument to be issued to sukukholders has been legally verified to be lawful without question,” Dana Gas Chief Executive Officer Patrick Allman-Ward said in the statement.

First-quarter profit rose 27 percent to $14 million on higher realized prices for condensate that helped offset a production decrease in Egypt and the U.A.E., the company said on Monday.

To contact the reporters on this story: Arif Sharif in Dubai at asharif2@bloomberg.net, Archana Narayanan in Dubai at anarayanan16@bloomberg.net.

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Claudia Maedler, Shaji Mathew

©2018 Bloomberg L.P.