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A claim by Dana Gas that it does not have to pay back its Islamic bonds because they are no longer sharia-compliant is “absurd” as repayment under such a scenario is covered in the original paperwork, creditors told a London High Court.
United Arab Emirates energy producer Dana Gas said in June that its $700 million sukuk were unlawful and unenforceable under UAE law and began proceedings to have this confirmed in British and UAE courts, because while the purchase undertaking part of the sukuk is regulated by English law, the “mudarabah” agreement underlying it is regulated by UAE law.
Mudarabah is a sukuk structure which resembles an investment management partnership.
The case has attracted the attention of the global Islamic finance industry as it could set a precedent for other sukuk issuers to refuse to redeem their debt obligations because of alleged changes in the interpretation of Islamic finance.
But the argument put forward by lawyers for fund manager BlackRock, reviewed by Reuters, argues that even in an unlikely scenario in which it could be shown that the mudarabah agreement could not be enforced under UAE law, Dana Gas would still be obliged to repay the sukuk under the purchase agreement.
In the trial in London, which began last week, legal representatives for BlackRock, which has some exposure to the Dana Gas sukuk, on Monday outlined their argument on its validity and enforceability to High Court judge George Leggatt.
Dana Gas and Deutsche Bank, one of the defendants and the delegate for the creditors, were not in court because of a last minute injunction obtained from a UAE court by some of Dana’s shareholders preventing them from taking part.
“In relation to each alleged mistake, the purchase undertaking provides, expressly or impliedly, that Dana Gas is to bear the relevant risk,” the document says.
“The alleged unlawfulness or unenforceability of the mudarabah agreement is one of the precise circumstances with which the (English law governed) purchase undertaking is intended to deal,” it adds.
Legal representatives for the creditors have asked the court to dismiss the Dana Gas claim and asked for permission to serve an exercise notice which would mean that if it does not pay back the sukuk principal, and the accrued unpaid profit rates, they would be able take action to ensure they were repaid.
Judge Leggatt said last week that after hearing BlackRock’s arguments he would adjourn the trial until Oct. 12 to see if the Sharjah court in the UAE would lift the injunction preventing Dana Gas and Deutsche from participating in the UK proceedings.
Dana Gas said on Wednesday it has received a dividend payment of $22.75 million from Pearl Petroleum in proportion of the company’s shareholding.
“This brings the total dividend payments r
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