Dana Gas Sukuk

A notable development in the sukuk market relates to the Sharjah (UAE) based obligor Dana Gas that this USD 700 m sukuk transaction is not compliant with Islamic law. Dana Gas produces gas in Egypt and the Kurdish region of Iraq. This ultra vires defence against sukuk holders claims to payment has caused a considerable stir in sukuk circles. Dana gas seeks to reschedule, offering investors a new four year sukuk, with interest payment equivalent to half that of the previous sukuk plus in-kind payments. maturing in October may now be rescheduled. Investors including Goldman Sachs and BlackRock have stated Dana’s repudiation of the claims and the sukuk are a repudiation of English law, which is the law governing the sukuk.

Three weeks ago Dana commenced a legal action in Sharjah to confirm the illegality of the sukuk, and successfully obtained an injunction in the BVI to prevent enforcement actions against it.

The story was covered in the FT 15 June 2017 Simeon Kerr, ‘Islamic bond market stunned by “unlawful” sukuk claim’ and the Economist.

There are consequences in terms of perceptions of sukuk, although it is too early to say whether these will be material and whether an intervention by reputable Islamic finance authorities may mitigate or exacerbate these. Sukuk holders in the UAE are seeking opinion on the legality of sukuk, querying whether they could be open to challenge in future.

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