Dana Gas has reached a six-month standstill agreement with bondholders over US$920 million (Dh3.37 billion) worth of Islamic bonds maturing today.
"A six-month standstill is happening. There is no white knight," said a source familiar with the matter. "All parties are progressing discussions."
An official filing is due to be released from the company today when the sukuk matures, the source said.
Dana Gas declined to comment.
HSBC, which is the trustee for the sukuk and would declare a default if it occurred, said that the company could invoke a three-day grace period after the bond matured if it was unable to repay in time.
If a restructuring agreement materialises, investor speculation will turn to whether or not bondholders will take a haircut and to the eventual terms of repayment.
The Sharjah-based gas explorer and producer has suffered payment delays from its operations in Egypt after the revolution last year, and in Iraqi Kurdistan amid a continuing dispute between Erbil and Baghdad.
Dana tumbled 4.2 per cent to close at 43 fils on the Abu Dhabi Securities Exchange yesterday. The shares, however, fell as much as 8.5 per cent during the trading session.
The sukuk, originally $1bn, was issued with a 7.5 per cent coupon to investors. Dana paid about $80m of the sukuk back in 2008 leaving $920m outstanding today. The company's six-month standstill agreement with bondholders was agreed upon early this month, the source said.
"They are buying more time. It's not the best result, but it's not a hugely bad result," said Mohammed Ali Yasin, the managing director of National Bank of Abu Dhabi's brokerage arm.
"People were hoping for it to be paid now. The fact that there's an agreement means they [Dana and creditors] are on the same wavelength. Dana didn't come and say 'we are in default'."
Dana's shares rose 30 per cent last month, trading from as low as 37 fils to 48 fils, amid investor speculation that an agreement would be reached by yesterday.
"There has been capital appreciation in anticipation of an agreement," said Mr Yasin. "Investors bought it to sell it once a decision was made. They knew the limit was one month. Now those who bought it with the expectation of one month are not happy. That's why there's a pullback."
Saleem Khokhar, the head of equities at National Bank of Abu Dhabi, said the result had been expected by the financial community.
"There was no way they were going to be able to pay in time," he said. "The only thing that mattered was how they were going to restructure the bond. It was always going to be about refinance."