Energy firm's dispute with creditors over $700m sukuk remains fraught
Investor joy at Dana Gas settlement may be short-lived
A little good news can go a long way for the share price of even the healthiest company. So it proved for Dana Gas, when its shares resumed trading with a bang after the Eid Al Adha holiday.
The Sharjah-based energy firm’s arbitration settlement with the Kurdistan regional government (KRG), announced on Friday, was, to put it mildly, a positive boost for the company. The settlement terms will see the KRG pay Dana and its partners in the Pearl Consortium US$600 million immediately, with a further $400m allocated towards the consortium’s further development of the region’s Khor Mor and Chemchemal gas fields. A further $1.24bn will be recovered by the consortium from future revenues.
Dana shares, a traditional favourite of the UAE’s retail investment community, were unsurprisingly the runaway winners on an otherwise quiet day for UAE bourses. The shares rose 14 per cent at the open and maintained such heights throughout the day, closing at a joint high for the year of 73 fils.
Such a positive performance however should not obscure the challenges facing the company. The recent settlement will win a lot of love from Dana’s shareholders (for the moment at least). Its relationship with its sukukholders, however remain fraught.
The company’s dispute with creditors over $700m sukuk due to mature in October remains toxic, following Dana’s extraordinary claim that the sukuk are no longer Sharia-compliant due to changes in Islamic finance practice.
The company’s subsequent decision to attempt to push the sukuk restructuring through the Sharjah and London courts, at odds with the behind closed doors restructuring culture of the region, has not endeared it to creditors, or to the Islamic finance community in general.
The KRG settlement may in the end act as a positive catalyst for Dana’s restructuring negotiations, giving the company, in theory at least, the ability to sweeten its offer to creditors, who in turn will be more willing to extend terms, comforted by the prospect of more reliable revenue streams from its operations in territory.
Such a scenario remains very optimistic however, with the company just as likely to be emboldened by its recent victory. Dana’s shareholders may rejoice in the short-term, but the company’s issues seem destined to continue for a while longer.