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First UAE company to not pay sukuk

UAE's Dana gas shuffles board amid debt talks

Saudi and Kuwaiti companies have defaulted on Islamic bonds in the past, leading to complex debt negotiations which have dragged on for years.


October 31, 2012 10:00 by

Dana Gas is set to become the first United Arab Emirates (UAE) company to fail to pay an Islamic bond on maturity, three sources familiar with the matter said on Tuesday, sending its stock and bond prices sharply lower.

The UAE’s largest listed natural gas firm, hit by payment delays from Egypt and Iraq’s Kurdistan region, will not repay a $920 million convertible Islamic bond, or sukuk, when it matures on Wednesday, the sources said.

However, Sharjah-based Dana has won more time to hammer out a deal with bondholders, they added.

Dana Gas declined to comment.

Although indebted firms in the Gulf Arab state have extended maturities on billions of dollars in bank loans since the onset of the financial crisis in 2008-09, no sukuk have been restructured or unpaid on maturity.

Saudi and Kuwaiti companies have defaulted on Islamic bonds in the past, leading to complex debt negotiations which have dragged on for years. Kuwait’s Investment Dar, which co-owns luxury carmaker Aston Martin, defaulted on a $100 million Islamic debt issue in 2009.

Dana has a $1 billion sukuk maturing on Oct. 31. It repurchased about $80 million of the sukuk in 2008, leaving $920 million outstanding.

The five-year sukuk, which was issued with a 7.5 percent coupon, has gained international interest as a majority of the debt is said to be owned by large investment firms including BlackRock Inc and Ashmore Group.

A source said that London-based Spinnaker Capital was among large holders. An executive at Spinnaker inLondon said it does not own Dana Gas bonds currently and has not held them before. BlackRock owns about 30 percent of the outstanding sukuk, according to two separate market sources.

There is “absolutely no chance” of a white knight swooping in to repay the bond by the due date, a source close to the talks said.

In 2009, the Abu Dhabi government stepped in at the eleventh hour to help Dubai repay developer Nakheel’s $4.1 billion Islamic bond.

The sources said Dana, in which Crescent Petroleum owns a 20-percent stake, reached a standstill a greement with creditors in early October giving it six months to repay the bond.

Some creditors are preparing for a potential “post-default scenario”, one source familiar with the discussions said, in which no deal would be reached at all.

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