SHARJAH, 8 October 2007 — Dana Gas PJSC, the Middle East’s first regional private-sector natural gas company, has successfully placed yesterday its convertible sukuk issue of $875 million. The size of the issue was increased from its initial amount of $750 million following strong market interest.
The company said in a statement that it was the first accelerated exchangeable bond in the Middle East and also the third largest convertible to be completed in the region. The sukuk issue is part of Dana Gas’ strategy to put in place the most efficient capital structure through broadening and diversifying the financing channels for the continued growth and expansion of the company’s activities.
The Sukuk exchangeable bond is one of the most sophisticated equity-linked structures to be issued, due to its combination of features including Shariah-compliant and onward-starting structures, as well being the first sukuk with delayed settlement. The issue of the convertible sukuk offering was approved by the company’s shareholders’ meeting in July.
“This is a landmark transaction that will propel the company through its next phase of growth, as well as successfully position Dana Gas in international capital markets,” said Neeraj Agarwal, finance director of Dana Gas.
The sukuk was structured as sukuk Al-Mudarabah and will mature in 2012.
Dana Gas is currently active in all aspects of the growing natural gas business in several countries across the region, with major projects and operations in the UAE, Egypt and most recently in the Kurdistan Region in northern Iraq, as well as new projects under development in other countries in the Middle East. The company’s $1.1 billion acquisition of Centurion Energy earlier this year placed Dana Gas as the sixth largest gas producer in Egypt, with further recent gas discoveries made as part of an active drilling program.
In April, Dana Gas also concluded important agreements for gas projects with the Kurdistan regional government of Iraq, with a first phase investment of approximately $400 million.
Worldwide Islamic banking assets currently total around $500 billion and are growing at over 15 percent per annum, with Islamic banks and financial institutions managing over $250 billion of assets and a further $200 to $300 billion managed by the Islamic subsidiaries of international banks.
DUBAI — United Arab Emirates-based energy company Dana Gas said yesterday it sold $875 million of five-year Islamic bonds convertible to shares after delaying the sale and reducing its size because of turmoil in credit markets.The company postponed the sale in July after defaults on US home loans drove up corporate borrowing costs around the world as investors became more reluctant to take on risk.
Bankers said the transaction was probably a private placement, allowing Dana Gas to test investor appetite without chancing a public sale in a risk-averse market.
“What you’re doing is calling the ladies for a tea party and selling your tupperware there, as opposed to setting up a stall at the Sunday market,” a banker who declined to be identified said.
Dana Gas Finance Director Neeraj Agarwal said the bond had been sold by banks to international investors and had been subscribed in a few hours.
Dana increased the size of the sale from an initial $750 million, it said in a statement. Shareholders had approved plans in early July to raise at least $1 billion.
“When the bond was issued it was reduced to $750 million taking into consideration the credit markets, but was increased due to demand,” a spokesman said.
Dana’s is the first benchmark size Gulf Arab Islamic bond to be sold since July, when borrowers in the region began delaying sales over the credit crisis. Benchmark size bonds are those worth at least $500 million. The bonds pay a coupon of 7.5 percent. The price at which they will convert to shares will be set in nine months, Agarwal said.
The bonds will be converted to shares at a 10 percent premium to a price that will be set in July next year, he said.
Islamic bonds, known as sukuk, comply with Islam’s ban on the receipt of interest, and are typically based on physical assets that pay a dividend or rent to bondholders.
“International investors are more likely to be attracted by the 7.5 percent coupon rate than the bond itself,” said another banker, who declined to be identified.
Coupon rates for Gulf Arab corporate bonds have on average been around 5 percent, he said. The sukuk would mature in 2012. The funds will be used for expansion, Dana said without giving details.
In January, Dana Gas completed the $1 billion acquisition of Canada’s Centurion Energy, an oil and gas firm operating in Egypt and West Africa.
In April, Dana signed gas deals with Iraq’s Kurdish regional government with an initial investment commitment of $400 million.
JP Morgan is advising Dana on the bond sale, two sources familiar with the transaction said.