UPDATE 1-UAE's Dana Gas aims to propose new sukuk terms in coming weeks
(Adds details, quotes on claim of sukuk illegality)
By Davide BarbusciaDUBAI, July 6 (Reuters) - Abu Dhabi-listed Dana Gas
<DANA.AD> aims to communicate proposed terms of a restructured
sukuk issue in coming weeks, chief executive Patrick Allman-Ward
said on Thursday.
He was speaking in a conference call to brief holders of the
company's $700 million of outstanding sukuk, which will mature
in October. There was no question and answer session in the
call, and no immediate response from creditors.
"The company would look to communicate to the market the
terms for a new restructured sukuk instrument and the process
for holders to participate in such a legal and enforceable
instrument over the coming weeks," Allman-Ward said.
In mid-June, Dana stunned creditors by announcing it would
halt payments on its existing four-year sukuk because they no
longer complied with changing interpretations of the Islamic
sharia code, and had thus become unlawful in the United Arab
Emirates. Dana said it would exchange the sukuk for new Islamic
instruments with lower profit rates than the existing paper.
Allman-Ward said on Thursday that the mudaraba structure of
the outstanding sukuk - a form of investment management
partnership - had become obsolete since 2007, when Dana
originally issued the debt and when that structure was common.
Many features of mudaraba have now been discredited, he said.
"The sukuk market has simply evolved and no longer regards a
pure mudaraba structure such as ours as being sharia-compliant
and, in the case of the UAE, lawful."
Investors and bankers in Islamic finance are concerned that
other sukuk issuers could imitate Dana in refusing to redeem
paper on the grounds that it has lost its sharia-compliance.
Allman-Ward insisted on Thursday, however, that Dana's
actions would not undermine the sukuk market as a whole, because
the arguments it was using to declare its mudaraba structure
illegal did not apply to other, lawful sukuk formats.
He did not provide significant new detail on Dana's sukuk
restructuring plan beyond what it revealed in its mid-June
statement. He said, however, that profit rates on the new sukuk
would have to reflect changes in the global bond market since
the existing paper was issued, as well as improvement in Dana's
financial outlook. [ID:nL8N1JA1QZ]
"The global high-yield environment has materially changed
since 2012, with high-yield index prices increasing by 25 to 30
percent over the period," he said.
"Applying this to our sukuk coupon rate would itself
indicate a new issue yield of below 4 percent."
The existing paper, half of which is convertible into
equity, features profit rates of 7 percent and 9 percent.
In its mid-June statement, Dana said its new sukuk, which
would not have a conversion feature, would provide profit
distributions at less than half the rates of the current sukuk.
Allman-Ward did not repeat the "less than half" phrase on
Dana and sukuk holders are contesting its plan in courts in
London and the emirate of Sharjah. On Wednesday, a London High
Court judge said he aimed to hold a full hearing on the case in
(Writing by Andrew Torchia; editing by Andrew Roche)
((email@example.com; +9715 6681 7277; Reuters
Keywords: DANA SUKUK/ (UPDATE 1)