Dana Gas' biggest investor has definitely ruled out a bailout days before a US$920 bond matures.
Crescent will not bail out Dana Gas
Crescent Petroleum, a Sharjah company that owns 21 per cent of Dana Gas, repeated a position first made public in May that it would not consider a cash injection.
"As far as a bailout from the shareholders, no, we ruled that out," said Majid Jafar, the chief executive of Crescent, which also shares concessions with Dana in Iraq and Egypt.
Dana Gas's sukuk, due tomorrow, has been the subject of much speculation in recent months.
Uncertainty about the company's ability to repay the bond climbed so high last Thursday that its yield exceeded the ability of the Bloomberg news wire's calculation matrix to compute. The day before it was listed at 9,530 per cent.
That behaviour is commonly seen when illiquid debts approach their maturity dates, said a trader at a specialist investment house that tracks such credit. "If the yield goes beyond 10,000 per cent the Bloomberg calculator crashes," he said.
"But quite frankly the yield is meaningless at this juncture."
Bloomberg confirmed that the figure was the result of the impending maturity.
If the company is unable to repay bondholders, Dana's creditors could seize part of the company's estimated $3.39bn in assets.
Dana Gas's problems stem from operations in Egypt and Iraqi Kurdistan, where a political dispute between Baghdad and Erbil have prevented regular payments for production.
A deal struck with Iran's state oil company to supply gas to the UAE has also failed.
"It's had some cash flow issues due to receivables from Iraq and the Kurdistan region in the north and Egypt as well as, of course like any publicly listed company, the challenges of the capital markets worldwide brought about by the European debt crisis," said Mr Jafar. "But we are confident that it will get through this. It's been prudent financially. It's not an issue of insolvency by any means, it's an issue of liquidity."
Yesterday Dana Gas's shares traded flat on the Abu Dhabi Securities Exchange at 47 fils for the sixth consecutive trading day, despite being the second most traded stock. The price is less than a tenth of its high after a 2005 initial public offering.
"We're optimistic," said Mr Jafar. "It's a short-term issue and the countries that it has invested in such as Egypt, such as Iraq, are very promising long-term."
Deutsche Bank, Blackstone Group and Latham & Watkins are advising Dana on the debt.