UAE’s Dana Gas leaves maturing sukuk unpaid but no default declared

31/10/2017 10:47 AST

United Arab Emirates energy producer Dana Gas will not redeem some $700 million of its Islamic bonds when they mature on Tuesday as a dispute on the validity of the sukuk drags on in British and UAE courts, sources familiar with the matter told Reuters.

Dana refuses to redeem its bonds because it claims changes in the interpretation of Islamic finance over recent years means the securities are no longer sharia-compliant and have become unlawful in the UAE.

But sukuk holders will not be able to declare a debt default because of injunctions issued in June by British and UAE courts, which prevented the holders from enforcing claims pending a resolution of the case.

The case is being closely watched by the global Islamic finance industry because some investors think it could set a precedent for other sukuk issuers.

Dana, however, believes its case will not set a precedent because the mudaraba structure of its sukuk is different from most other Islamic bonds in the market, a source close to the situation said. He declined to be identified as he was not authorised to speak with media.

Sukuk outstanding globally total close to $370 billion, but instruments with the same structure as Dana’s bond comprise less than 5 percent of total issues by value, said the source.

A trial on the validity of the sukuk started at a London High Court in September but injunctions issued by a court in the UAE emirate of Sharjah have slowed proceedings.

In the latest London hearing, earlier this month, High Court judge George Leggatt adjourned proceedings to give time to the company to appeal against an injunction, requested by some of the company’s shareholders and granted by the Sharjah court, preventing the company from taking part in the London trial.

Proceedings in London are expected to resume by Nov. 13, Leggatt said. Some sources familiar with the case believe a ruling on the case could be issued on that date or shortly afterwards.

Dana asked the Sharjah court early last week for an early hearing date for an appeal which would allow it to participate in the London court case, said the source close to the situation.

Reuters