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Dana Gas yield at record amid risky Iraq fields



Dubai: Dana Gas bonds are tumbling, driving yields to records, amid concern the fuel producer's fields in northern Iraq are threatened by intensifying battles between rebels and Kurdish forces.

With more than half the company's first-half revenue generated in the Kurdish region of Iraq, the yield on the October 2017 callable Sharia-compliant security jumped 86 basis points in the past five days to 10.57 per cent on Tuesday, an all-time high. That compares to a four basis-point increase to 4.19 per cent for the yield on Middle East sukuk, according to JPMorgan Chase indices.

Fighters from the Islamic State this week captured a Kurdish town and two oil fields, hurting share prices of oil and gas exploration companies such as DNO that operate in Iraqi Kurdistan. Sharjah, United Arab Emirates-based Dana was forced to restructure almost $1 billion of debt because of missed payments, partly from Iraq.

"The news of the Islamic State militants' first major victory this week over Kurdish troops would add to investor concerns and negative investor sentiments on the credit," Deepti S. M., a Bangalore-based credit analyst at SJS Markets, said by e-mail.

"There would be heightened operating risks and security concerns about militants" getting close to Dana's fields, she said.

Cancelled call
Concerns were compounded this week when Dana canceled an August 4 investor call. The company this morning said that second quarter profit climbed to Dh169 million ($46 million) from Dh100 million a year earlier. Receivables from the Kurdish region jumped to $650 million on June 30 from $515 million at the end of 2013.

"Our Kurdistan operations have proceeded entirely normally and there has been no interruption in our production," chief executive officer Patrick Allman-Ward told reporters on a conference call in the morning. "We continue to produce at maximum capacity. The gas is used for power generation and that's of course a key component to keeping the lights on in Erbil and other cities in the Kurdistan region." -

Convertible bonds
The callable bond's surging yield means that the security, which is relatively illiquid, is receiving "weak" bids, Deepti S.M. said. While about $73 million worth of Dana's $425 million bond had been converted earlier this year, no investor opted to swap the debt into equity in the period from June 16 to July 31, the company said in a statement provided by the London Stock Exchange Regulatory News Service this week.

"There have been a lot of conversions since the start of the year, but that's now slowing because doubts about the collection of money has grown," Sanyalaksna Manibhandu, Abu Dhabi-based manager of research at NBAD Securities, said by telephone yesterday. "The bickering over cash with the Kurdish Regional Government is very confusing and makes both of them look like they can't sort things out."

Manibhandu said he may revise his 'accumulate' rating on the stock, equivalent to buy, depending on second-quarter results.

Arbitration ruling
Dana shares and bonds rallied in July after the London Court of International Arbitration ordered the Kurdish Regional Government to resume regular payments to the company while the case continues.

The KRG said July 16 the arbitration case is not concluded and Dana owes it more than $4.8 billion. Safeen Dizayee, a spokesman for the authority, said in an interview on June 30 the KRG may seek loans from international banks after Iraq's central government this year allocated only enough money for the KRG to pay civil servants' salaries for the first two months.

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