* Sukuk holders to be paid in cash and new bonds
* Parties working toward agreement in 2-3 weeks - source
* Terms of new sukuk acceptable to bond holders - source
* Bought back $80 mln of original $1 bln issue in 2008 (Adds details from source)
By Dinesh Nair and Mirna Sleiman
DUBAI, Nov 7 (Reuters) - Dana Gas, the first UAE group to default on an Islamic bond, has reached an agreed restructuring of its $920 million sukuk, potentially averting seizure of its Egyptian assets.
Although indebted firms in the Gulf Arab state have extended maturities on billions of dollars in bank loans since the financial crisis in 2008-09, no sukuk had been restructured or unpaid on maturity. The Dana Gas sukuk matured on Oct. 31.
Natural gas producer Dana, headquartered in Sharjah, said on Wednesday it will pay its sukuk holders a mix of cash and new bonds - split between a sukuk and a convertible.
It did not say what proportion would be in cash under the deal agreed with a group of bondholders. Dana had 516 million dirhams ($140 million) at Sept. 30, according to its third-quarter earnings statement.
"We are very pleased to have reached an agreement, which we believe best preserves the interests of all stakeholders," chairman Adel Khalid Al-Sabeeh said.
The terms of the proposed new sukuk instruments have been agreed by bondholders, a source close to the situation said.
The parties are working towards an agreement that will detail all commercial aspects of the deal in the next 2-3 weeks, the source said. The parties need to agree on it by the end November, the source said.
"We believe the terms will be more on the creditors side than the market had anticipated," said one bond trader who declined to be identified.
Dana Gas shares were up 4.9 percent at 1040 GMT.
The sukuk, said to be held by investment firms such as Ashmore Group and BlackRock, was quoted at 66 cents to the dollar on Wednesday according to prices by Nomura.
Anastasios Dalgiannakis, institutional trading manager at Mubasher, said while it was hard to assess the deal's implications without full details, it was likely to be negative for equity holders.
"The element of a new convertible increases the risk of dilution for shareholders and the ordinary sukuk increases the risk of Dana adding further assets (such as those in Kurdistan) as security, which will mean subordination for equity holders"
The sukuk was launched as a $1 billion deal of which Dana bought back about $80 million in 2008.
Dana, which has a 3 percent stake in Hungarian group MOL , said it had entered into a standstill agreement with the creditors committee.
The standstill, agreed upon in early October, according to a source close to Dana, can last up to six months, protecting the company from creditor enforcement or the claiming of assets underlying the bond.
A source close to the creditors told Reuters last week bondholders were considering claiming Dana Gas's Egyptian assets put up as security against the issue.
Dana, in which Crescent Petroleum has a 20 percent stake, formally acknowledged on Monday it had not repaid the sukuk and asked holders to decide on their course of action. Shareholders will get to vote on the final agreement at an extraordinary general meeting.
Dana has been hit by payment delays on gas it supplies to Egypt and Iraq's Kurdistan region. Its shares have slumped on the Abu Dhabi bourse since Reuters reported last week the company was set to miss the bond repayment.
Dana is advised by The Blackstone Group, Deutsche Bank and law firm Latham & Watkins. The group of creditors is advised by Moelis and Linklaters. ($1 = 3.6730 UAE dirhams) (Additional Reporting by Nadia Saleem; Editing by Dan Lalor and David Cowell)