Dana Gas, the Middle Eastern energy producer seeking to declare $700mn of it own Islamic bonds unlawful, has retracted an offer it made to sukukholders and plans to settle the restructuring in court.
The Sharjah-based company, has met with representatives of the Ad Hoc Committee of Sukukholders and informed them that it’s now pursuing “litigation-driven outcomes,” it said in a statement to the Abu Dhabi bourse on the day investors would have received a profit payment.
“The Ad Hoc Committee actively sought to prevent the company from pursuing any exchange offer through its actions during UK court proceedings, which the company believes is not in the interests of the sukukholders,” Dana said on Monday.
After announcing last month that its own facilities don’t comply with Shariah principles, Dana Gas offered to replace two outstanding sukuk with four-year bonds that pay less than half the current profit rates. The debt revamp is the company’s second in five years as $1bn of overdue payments from Egypt and Iraq’s Kurdish region leave it grappling for cash.
The energy company has controversially claimed that it’s not bound to make payments on the two securities since they no longer comply with local laws due to the evolution of Islamic finance, an issue the UK courts will rule on later this year.
Dana Gas announced plans in May to restructure the debt, saying it needed to “focus on short-to-medium-term cash preservation.” Investors see the lawsuit as a delaying tactic designed to force them to accept an unfavourable restructuring.
“Dana is persisting in its ‘offensive’ as opposed to ‘defensive’ approach to reaching some sort of an agreement,” said Sanyalak Manibhandu, the head of research at Abu Dhabi-based NBAD Securities, adding that if the outcome is sought through litigation, the case is likely to extend into 2018. “If this is a delaying tactic, it runs the risk of sukukholders seeking legal satisfaction in suing for the collateral backing the two sukuk. It looks like a high-risk strategy.”
The mudaraba sukuk in question are each $350mn in size, with one paying 9% and the other, which includes a conversion clause, 7%. Both of the facilities mature on October 31.
As of the end of March, Dana Gas had about $298mn of cash on hand.