DUBAI: Investors in Dana Gas’s $700 million Islamic bond are likely to have to repay the company a “significant” amount as a result of legal action in the UAE, the company said on Tuesday.
In a case which has unsettled the Islamic finance industry, Dana is seeking in UAE and British courts to avoid repaying its $700 million in Islamic bonds when they mature in October, arguing that the bonds have become unlawful in the UAE because of changes to Islamic financial practice.
“The final outcome of the ongoing litigation in UAE courts would likely result in a significant liability for the sukuk holders to repay the company excess ‘on account profit payments’ based on a lawful reconciliation of the matter,” Dana said.
Dana’s statement on Tuesday, published with its quarterly earnings, did not give a specific figure for the payments which it expected to receive from sukuk holders.
The Dana case has alarmed investors and banks in the Islamic finance industry because it could set a precedent for other sukuk issuers to refuse to redeem their bonds on the grounds that they are no longer Shariah-compliant.
Dana Gas had proposed a restructuring of the $700 million in bonds in which it would exchange them for new Shariah-compliant bonds. But the new bonds would offer right to profit distributions at less than half the rate of the existing bonds and would not feature any conversion into equity.
Dana Gas’s proposal caused an outcry from bond holders.
Dana has been advised by lawyers that there could be two outcomes from court proceedings in the UAE, a source close to the company said.
Under one scenario, if the UAE court decides the whole sukuk transaction needs to be unwound, Dana Gas would repay the $700 million but also claim back the “profit payments” — equivalent to coupon payments for conventional bonds — which it made on the bonds since 2008.
These total $635 million, so creditors would recover only $65 million on a net basis, the source said.
Under the other likely outcome, the UAE court would invalidate the purchase undertaking behind the sukuk, requiring the instruments to be treated as equity.
In this case, Dana would calculate its excess payments to sukuk holders at $575 million — the total profit payments on the sukuk minus actual profits of $60 million made by Dana LNG Ventures, the asset underlying the sukuk. Dana LNG Ventures is a holding company for Dana Gas Egypt.
Dana would then subtract the value of Dana Gas Egypt, which has been valued at $425 million, to obtain a figure of $150 million which sukuk holders would be asked to repay to the company, the source said.
The bondholders, represented by Deutsche Bank, are fighting Dana’s claims. A representative for the bondholders was not immediately available for comment.
The case is scheduled to be heard at London’s High Court in late September.
Last month, the High Court ordered Dana to halt the UAE legal proceedings, but the company subsequently said obtaining the stay could take months, which would allow a UAE court hearing scheduled for December to go ahead.
The case is being fought in two countries because while the purchase undertaking for the original sukuk is governed by English law, the gas production assets behind the sukuk fall under UAE law, according to the sukuk prospectus.
Dana Gas bondholders face ‘significant liability’ in UAE court case
Dana Gas bondholders face ‘significant liability’ in UAE court case
G7 countries to release oil reserves in global push to tackle Iran war energy price surge
- IEA expected to recommend the largest oil reserve release in the agency’s history
RIYADH: Germany, the US, Japan and Austria will release part of their oil reserves after the International Energy Agency recommended the release of 400 million barrels of oil from stockpiles, the largest such move in IEA history.
Germany’s Economy Minister Katherina Reiche confirmed on Wednesday the government plans to limit petrol price increases at filling stations to once a day and to introduce more stringent antitrust regulation of the sector.
She did not give an exact timing for those measures, but added that the US and Japan would be the largest contributors to the release of the oil reserves.
The announcements did not stop oil prices rising, with Brent crude up 3.26 percent to $90.66 a barrel at 4:29 p.m Saudi time, and West Texas Intermediate up 3.12 percent to $86.05. Both were some way below the $119 a barrel seen earlier in the week.
“The situation regarding oil supplies is tense, as the Strait of Hormuz is currently virtually impassable,” Reiche said.
“We will comply with this request and contribute our share, because Germany stands behind the IEA’s most important principle: mutual solidarity,” Reiche said about the IEA’s request.
According to a statement by Reiche’s ministry, Germany will contribute 2.64 million tonnes of oil. This corresponds to 19.51 million barrels.
Reiche stressed there was no supply shortage in the country, which has a legally mandated reserve of oil and oil products intended to cover 90 days’ demand.
The IEA’s move comes as countries are grappling with soaring crude prices amid the US-Israeli war with Iran.
Austrian Economy Minister Wolfgang Hattmannsdorfer said his country was releasing part of the emergency oil reserve and extending the national strategic gas reserve, adding: “One thing is clear: in a crisis, there must be no crisis winners at the expense of commuters and businesses.”
Acting ahead of the IEA move, G7 member Japan announced plans to release 15 days' worth of private-sector oil reserves and one month's worth of state oil reserves.
“Rather than wait for formal IEA approval of a coordinated international reserve release, Japan will act first to ease global energy market supply and demand, releasing reserves as early as the 16th of this month,” Prime Minister Sanae Takaichi said in a broadcast statement.
