Dana Gas has reached agreement with creditors on restructuring $700m of sukuk, it said on Sunday, potentially ending a protracted legal battle that unsettled the global Islamic finance industry.
The United Arab Emirates energy company said in June that it would not redeem the Islamic bonds, arguing that changes in Islamic financial practices had made them invalid under UAE law, leading to a fight in UAE and British courts.
Under the deal with the sukuk holders’ committee, investors who want to exit the instruments can do so in a tender at 90.5 cents on the dollar.
Alternatively, investors can exchange the sukuk for new three-year Islamic instruments with a 4 per cent profit rate, while receiving final profit payments that they were owed before the old sukuk matured last October 31.
“The consensual transaction represents a means to resolve amicably all current issues and disputes facing the parties,” Dana said.
The company said it expected to launch the tender offer this month and complete the deal by the first half of July, though this depends on conditions including the payment of certain parties’ costs and termination of all current litigation.
Holders representing more than 52 per cent of $350m of sukuk convertible into equity, and 30 per cent of $350m of non-convertible sukuk, agreed to take no further action before the tender, Dana said.
A source familiar with the deal told Reuters it would require the support of 75 per cent of sukuk holders and would then become compulsory for the rest.
Dana’s shares jumped 3.9 per cent on Sunday after news of the deal, which it said could reduce the company’s debt by up to $385m.
The dispute involved a number of leading international financial institutions, including fund manager BlackRock , an investor, and Deutsche Bank, which represented investors in legal proceedings.
Dana said the dispute had no implications for Islamic finance as a whole, but many in the industry worried that it could set a dangerous precedent for other firms to repudiate debts on the grounds that scholars’ interpretation of what was religiously permissible had shifted.
The original sukuk carried profit rates of 7 per cent and 9 per cent and used a mudaraba structure, an investment management partnership.
Dana argued this structure had fallen into disuse, and it justified paying a lower profit rate on the new sukuk on the grounds that its prospects had improved as it secured hundreds of millions of dollars of payments from Iraqi Kurdistan.
The new sukuk would use a wakala structure, a more common format in which one party manages assets on behalf of another.
The deal appeared fairly close to a proposal that Dana made to creditors in mid-2017, when it suggested swapping the original sukuk for new, non-convertible ones with four-year maturities and profit distributions at less than half the rate.
“We are now pleased to have reached an agreement with the company and provide our support to the settlement,” the sukuk holders’ committee said without elaborating.
One sukuk holder, who declined to be named, was more critical.
“The company has acted egregiously against their creditors in the interest of protecting the equity value. In doing so, they have anchored the conversation so far out in left field that any settlement is a win for them and a loss for us.”
Creditors won some rounds in the dispute; a London High Court judge ruled in February that the purchase undertaking behind the sukuk was valid and enforceable.
But a court in the emirate of Sharjah at one stage directed enforcement of British court orders in the UAE be suspended, appearing to set courts in the two jurisdictions at odds with each other.