What's Up: BlackRock and Ashmore Group will receive more than twice the average yield on emerging markets company sukuk after Dana Gas said it had finished the restructuring of US$920 million in Islamic bonds.
Yields doubled up on sukuk from Dana Gas
Dana, which missed sukuk payments in October, said on Monday it would split $850m of debt into convertible bonds and an ordinary sukuk and pay creditors $70m in cash. The five-year convertible bonds will pay a profit rate of 7 per cent and the ordinary sukuk 9 per cent. That compares with 7.5 per cent on the original sukuk and an average yield of 3.09 per cent on emerging corporate sukuk, an all-time low, HSBC/Nasdaq Dubai's Corporate US Dollar Sukuk Index shows.
"The proposed restructuring terms are quite favourable for Dana sukuk holders as they ensure preservation of initial capital while also provide a small upside in pricing," said Apostolos Bantis, a credit analyst at Commerzbank in London. "There is still value in Dana's assets and the company's longer-term prospects are positive."
Dana, based in Sharjah, said this month it received $48m from the Kurdish government in Iraq, one of two regions where payment delays forced the natural gas producer to restructure the debt. Egypt has also been settling payments for current production, said Dana.
Dana said it would also boost the collateral on the new sukuk by $300m, including money owed to it for gas produced in Egypt and certain UAE assets. The company will have the option to pay down the outstanding notes before maturity on October 31, 2017.
Dana shares have dropped 11 per cent this year to 40 fils, compared with a 12 per cent gain for the Abu Dhabi Securities Exchange General Index. The potential dilution for shareholders "remains substantially similar" to the existing terms, the company said.
Still, Dana's ability to service and pay the debt back rests on whether it can successfully make its operations in Egypt and Kurdistan "fully cash generative", said Abdul Kadir Hussain, the chief executive at Mashreq Capital in Dubai.
* Bloomberg News