UAE’s Dana Gas schedules Wednesday call to discuss sukuk restructuring

By Angela McDaniels

Tacoma, Wash., June 19 – Dana Gas PJSC will hold a call at 2 p.m. ET on Wednesday for the holders of its Mudarabah sukuk, according to a company news release.

The company said the purpose of the call is to communicate with the sukukholders and provide information about the planned restructuring of the sukuk, including “background on declaration of the current sukuk’s unlawfulness, proposed solution for the way forward and the steps that the company has in the meantime had to take to protect its position in the interests of all of its stakeholders.”

On May 3, Dana Gas invited the sukukholders to form an ad hoc committee in order to begin discussions about the sukuk, which consists of $350 million of 9% ordinary certificates and $350 million of 7% exchangeable certificates. Both are due in October 2017.

The company received legal advice that the sukuk in its present form is not Sharia compliant and is therefore unlawful under the laws of the United Arab Emirates. It cited the “evolution and continual development of Islamic financial instruments and their interpretation.”

The company proposes restructuring the sukuk by exchanging them for a new enforceable, Sharia-compliant instrument. The new sukuk would have a tenor of four years, confer rights to profit distributions at less than half of the current profit rates and not have a conversion feature. The new profit payments would have a cash element and a pay-in-kind element.

Because its receivables and future damages payments “may be unpredictable,” Dana Gas proposes making prepayments under the new sukuk either in whole or in part at par prior to its maturity without any penalty.

The next two distributions scheduled for July 31 and Oct. 31 cannot be paid now that the existing sukuk is deemed unlawful, but they will be accounted for as part of the new sukuk instrument, according to the news release.

The company said that it is seeking a consensual agreement with the holders and that the proposed exchange offer takes into account its need to focus on short- to medium-term cash preservation due to the continued challenges it faces around cash collections in Kurdistan and Egypt.

The proposed offer will allow the company time to collect more than $900 million of total receivables due from the Kurdistan Regional Government and the Egyptian government and also obtain awards for damages from the arbitration cases with Kurdistan and the National Iranian Oil Co.

"Since the sukuk were put in place in May 2013, Dana Gas has been transformed,” chief executive officer Patrick Allman-Ward said in a news release. “Against a backdrop of significant operational progress, the company has had clear successes in its arbitration cases and now has approximately $900 million of undisputed receivables from two governments.

“The company's risk profile has changed very positively, and the outstanding balance of the sukuk has been reduced from $1 billion to the current $700 million despite continued challenges around collections.

“The company, however, still needs time to deliver fully on its potential and in the meantime must preserve its financial strength so that it can realize the full value of its assets for the benefit of all stakeholders."

Court proceedings

The company has begun proceedings in the UAE courts in order to seek a declaration as to the lawfulness of the sukuk.

The company said no dissolution event nor technical default has taken place.

At the company’s request, the Sharjah Federal Court of First Instance issued an injunction pending determination of the company’s application to have its sukuk declared unlawful and unenforceable.

The injunction restrains, among other things, the trustee, the delegate, the principal security agent and the Egyptian security agent under the sukuk from taking any action, inside or outside the United Arab Emirates, to enforce against any of the securities of the company and its affiliates under the company’s security agreement until a final determination is made by the court in the lawsuit.

An initial hearing on the action has been scheduled for Dec. 25, 2017.

On June 13, the company was granted an injunction from the Commercial Division of the High Court of Justice in the British Virgin Islands that restrains, among other things, any enforcement action against certain of the company’s British Virgin Islands assets and provides additional protection for the company's position pending the outcome of the action in the UAE court.

In addition, the English High Court of Justice in London granted the company an injunction restraining the trustee, the delegate and the security agents from taking any hostile action in connection with the sukuk.

Dana Gas is a private sector natural gas company based in Sharjah, the United Arab Emirates.

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