Dana Gas seen returning to table after London ruling
November 21 2017 10:24 PM
The London court ruling puts investors one step closer to resolving the Dana Gas dispute over the sukuk that highlighted one of the Islamic finance industry’s weak spots in the UAE


Dana Gas plans to appeal a UK court ruling on $700mn of its Islamic bonds, whose holders include Goldman Sachs Group Inc and BlackRock Inc.
The decision by the London court on Friday is “flawed” because the UAE-based company was barred from participating in the proceedings due to an injunction at home, Dana said on Sunday. The company will also take steps to have the UAE case dealt with as quickly as possible.
Judge George Leggatt said the English law contracts are enforceable in the case. The ruling relates only to the English law section of a dispute with bondholders.
“This provides a bit of incentive to Dana to return to the negotiating table,” Khalid Howladar, the managing director of risk consultancy Acreditus, said by telephone. “One of the main reasons that Dana got an injunction in the first place is that it has assets outside the UAE and if in the end they don’t respect the judgment (notwithstanding an appeal) the creditors could decide to enforce against its foreign assets to satisfy the judgment.”
Dana was challenging a provision called purchase undertaking, which allowed the trustee on behalf of investors to force Dana to buy them out of the agreement at par. Leggatt didn’t rule on whether it could be invoked, only that it was a valid agreement that binds both sides. The company said it was unable to take part in the London trial because shareholders won an injunction in the UAE.
Dana shares fell as much as 5.6% on the Abu Dhabi stock market on Sunday.
“We do not expect this to impact the final legal outcome which will come from the Sharjah Courts,” Arun Reddy, a financial adviser to Dana at Houlihan Lokey, said in an email. “This is just the beginning in determining the legal status of the sukuk.”
The London court ruling puts investors one step closer to resolving a dispute over the sukuk that highlighted one of the Islamic finance industry’s weak spots in the UAE. Unlike markets such as Malaysia, where Shariah-compliant structures are regulated by the government, Middle Eastern borrowers mostly rely on scholars to determine if a contract complies with the religion’s teachings, which leaves room for interpretation.
“This outcome vindicates the position we have taken from the start regarding the validity of the purchase undertaking and Dana’s payment obligations under it,” said Andrew Wilkinson, a lawyer for the sukuk investors. “We hope Dana will now come to the table to discuss possible consensual solutions and avoid further value destruction.”
The dispute began after Dana, which had struggled to collect payments due from Egypt and Iraq’s Kurdish region, said in June it no longer considered its sukuk to be Shariah-compliant. It didn’t repay two $350mn mudaraba sukuk due October 31, the second time in five years it has failed to settle bonds at maturity.
Mudaraba is a type of Islamic financing that involves an investment-management partnership, whereby one partner provides cash and the other manages the investment in what’s meant to be a profit-sharing arrangement.
The structure has been largely discontinued in the UAE since 2007, when Islamic scholar Sheikh Muhammad Taqi Usmani declared they shouldn’t guarantee capital repayment on maturity but instead be treated as equity instruments to ensure both partners share the risk and reward.

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