SEPTEMBER 13, 2017
Kate Allen
UAE-based energy company Dana Gas has rejected an offer by its creditors to restructure $700m of Islamic bonds after the company declared its sukuk “unlawful”, in a case that could have wider implications for the Islamic finance market.
Dana Gas, which operates in Egypt and Iraqi Kurdistan, told creditors in June that it would not make payments on the debt as the bond’s structure had been deemed unlawful after changes to UAE Islamic law.
Some Dana Gas investors formed an ad hoc negotiation committee to argue that the move was a repudiation of the English law governing the Islamic finance product.
The bond had been set to mature in October; the case is due to be heard in a London court later this month, and a separate case will be heard in the UAE in December.
The creditors’ committee today offered Dana Gas a restructuring proposal involving a $300m cash paydown and a three-year maturity extension. Seventy per cent of the bondholders by value support the proposal, according to the committee.
Andrew Wilkinson of legal firm Weil, Gotshal & Manges – which is representing the committee – said:
We have always wished to negotiate a consensual restructuring of the sukuk, in response to the company’s request for an extension. We hope that Dana’s management sees this as a good proposal which would deliver a stable capital structure going forward.
But a person familiar with Dana Gas’ thoughts on the matter said the company considered the offer to be “unacceptable and unrealistic”.
“They do not think it reflects the value of the bondholders’ legal position,” she said, adding that Dana Gas is “confident” of its argument. “They are continuing to pursue their legal strategy in the courts.”
The market for sukuk issuance stalled after the row erupted, with investors buying just $17m in the first three weeks after Dana Gas declared the debt to be unlawful – the lowest three-week total for more than six years.
Since then, dealmaking has got under way again, with Malaysian state-backed housing lender LPPSA raising $816m last month in the largest deal since the Dana Gas row, according to figures from data provider Dealogic.
The Kingdom of Bahrain is in the market today seeking to raise up to $850m in a 7.5-year sukuk as part of a wider three-tranche debt-raising.
Sukuk sales have boomed in recent years as a growing number of investors have demanded debt structured in such a way that it does not infringe Islamic law, which forbids the payment of interest.
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