Dana Gas has fingered the Egyptian revolution for its cash flow issues, lamenting that the government’s inability to pay for gas purchases has cast the company in an image of a chronic debtor. The UAE based company attributes its recent default, on a $1Billion Islamic Shari’a-compliant Sukuk bond, to “ receivables” from the government, becoming “much more complicated as well as much more severe”.
The bond’s maturity date came and passed on 31 October 2012. $920 million was due after Dana Gas repurchased $80 million of the bond issue in 2008. The company also failed to pay $18.75 million of accrued profit from the Sukuk-holders ownership stake due on 30 October 2012. Dana Gas’s exploration and production projects are primarily based in Egypt and Iraqi Kurdistan, two areas which have seen political instability over the last two years. In a statement, Dana Gas explains that payments delays from the Egyptian government in the aftermath of the 25 January Revolution are largely to blame for the current cash crunch. Although most companies say that the revolution, which kicked off in February 2011, did not affect oilfield work, it did, however affect the Egyptian economy so badly that payments for goods and services are no longer as prompt as they used to be.
Egypt, the largest domestic gas market on the continent (1.6Trillion Cubic Feet in 2010) majorly buys gas from hydrocarbon producers and sells to industries and power plants at a subsidy. “We cannot deny that the revolution affected everybody including Dana Gas. Even before the recent default on the Sukuk bond, Dana Gas has talked about its inability to execute a full work programme in 2011, and partly in 2012…and lamented that its reserves replacement factor and production “were both lower in 2011 and 2012 than in previous years” The company says it is in talks with bondholders to amend the terms of the Sukuk and extend re-payment.
Dana Gas had previously negotiated a “standstill” agreement with its creditors in early October under which efforts to collect would be held off for six months after the Sukuk bond matured. While other companies have restructured Sukuk bonds or been bailed out by the government, Dana Gas is the first UAE company to default on a Sukuk bond.