Holders of about $700 million of Islamic bonds issued by Abu Dhabi-listed Dana Gas have submitted a restructuring plan to the company’s management, a committee for the holders said on Wednesday.
The sukuk are due to mature this year but Dana has refused to redeem them on the grounds that changes to Islamic financial practice in recent years make them unlawful in the United Arab Emirates – a claim which the holders reject.
Dana argues that the sukuk’s mudaraba structure – a form of investment management partnership – has become obsolete since 2007 when the company originally issued the debt. At that time the structure was common but Dana says many of its features have been discredited.
The company and sukuk holders have gone to courts in Britain and the UAE to fight the case, which is being closely watched by the global Islamic finance industry because it could set a precedent for other such disputes. London’s High Court is due to begin a major hearing of the case next week. 
The creditors’ committee said on Wednesday that it hoped its proposal, which had the support in principle of over 70 percent of sukuk holders by value, would be the basis for discussion of a restructuring.
Dana did not immediately issue a statement responding to the proposal but a source close to the natural gas producer described it as “unrealistic” and “unacceptable”.
As a result, Dana will continue to pursue litigation over the sukuk in UAE and British courts, the source told Reuters.
The committee’s proposal includes a cash paydown to sukuk holders of $300 million, split equally between the two tranches of the bonds, half of which are exchangeable into equity.
The firm has faced financial pressure in recent years as it has struggled to obtain payments from Iraqi Kurdistan and Egypt. But at the end of last month it reached a deal with Kurdish authorities, who agreed to pay Dana’s consortium $1 billion.
Dana received $350 million of that amount, although nearly half was earmarked under the deal for investment in Kurdistan. Other terms in the committee’s proposal include extending the maturity of the sukuk by three years, and keeping the sukuk’s current rates of periodic profit distribution to investors: 9.0 percent for the ordinary sukuk and 7.0 percent for the exchangeable bonds.
The effective conversion price for the exchangeable sukuk would be kept unchanged at 0.75 dirham under the proposal. The current market price of Dana’s shares is 0.81 dirham, up 27 percent since the Kurdistan deal was announced.
The sukuk holders said a requirement of their proposal was that Dana should try to obtain a dual listing on the London Stock Exchange, because that would increase liquidity in its shares and raise its profile.
Dana has previously said sukuk holders are likely to have to repay it a “significant” amount of money if it succeeds in having the bonds declared illegal in the courts.
Source: Reuters
