Dana Gas outlines possible sukuk restructuring terms, refutes reports

By Caroline Salls

Pittsburgh, July 10 – Dana Gas PJSC chief executive officer Patrick Allman-Ward announces possible terms of a restructuring in a July 6 statement to sukukholders, according to a Monday news release.

In addition, Allman-Ward said reports that the company has refused to talk with sukukholders or that the company was using the unlawfulness of its Mudarabah sukuk as a negotiating or pressure tactic were not true.

Allman-Ward said the company invited an informal committee of sukukholders to meet or joint Dana in a call, but its requests were declined.

In response to reports that the company was using the unlawfulness of the sukuk as a negotiating tactic, Allman-Ward said the commercial terms for a restructuring, and the need to address and correct the illegality of the current sukuk, are two entirely separate and unconnected matters.

“If the company had wanted to use the sukuk’s unlawfulness and invalidity to its advantage, our proposed commercial terms for the restructuring would have been far less favorable,” Allman-Ward said.

As a result of changes in the Global Fixed Income market and Dana Gas’s financial position, the company said a framework for re-adjusted commercial terms of an offer will be forthcoming.

Restructuring terms

Dana said the likely terms of a sukuk restructuring deal would include a new instrument that would provide repayment to sukukholders over time.

The company said the upcoming scheduled profit payments “obviously cannot be paid as part of the current unlawful instrument, but would be accounted for as part of a mutually agreed new lawful instrument.”

Dana said it would be looking to a new profit level reflective of the current market, to be structured partly in cash and partly as a payment in kind.

Also, the company said a bullet maturity of four years should allow sufficient time for it to generate the necessary cash to pay down the restructured sukuk whether from operations or through collections resulting from arbitration awards.

Prepayments at Dana’s option could be made in whole or in part before maturity without penalty, providing a path for early pay-down for the sukukholders as excess cash is generated the company.

The new instrument would not be convertible, the release said.

Applying changes of the global high-yield market since 2012 to its sukuk coupon rates would indicate a new issue yield of below 4%, the company said.

Credit situation improved

In addition, Dana Gas said its specific credit situation has significantly improved, and the company’s asset value has dramatically increased since the 2012/2013 sukuk refinancing because it now has uncontested affirmations of previously disputed contractual rights related to its two most valuable assets.

The company said this has resulted from highly successful international arbitrations, which validated contracts and resulted in an uncontested award of $2.1 billion of which Dana Gas’ share is $713 million.

“This is a major milestone, and has been key to the company’s assets being recently valued by a leading international independent sector expert at potentially $29 billion,” the statement said.

Dana said its arbitration awards have also crystallized significant receivables and opened up opportunities for the company to sue for damages in two cases, which could total tens of billions of dollars.

Awards in both cases are expected to be decided before the middle of next year.

Uncertainty remains

Despite these positive outcomes, Dana said there is continued uncertainty regarding the timing of cash collections in both Egypt and Kurdistan.

For this reason, the company said it needs to continue to plan for the worst, requiring it to focus on short to medium-term cash preservation to maintain its operations and safeguard its valuable contracts and licenses while achieving collections either through enforcement or satisfactory early settlements with its host governments.

Sukuk unlawfulness

When its Mudarabah sukuk was first issued in 2007, Dana said about 90% of sukuk instruments then in existence were Mudarabah in structure. However, the company said the further development and evolution of Islamic finance concepts and jurisprudence since its original sukuk was structured in 2007, and restructured in 2012/2013, resulted in the discrediting and abandonment of many of the features of the current Mudarabah sukuk.

Dana said its 10-year-old Mudarabah sukuk is possibly the only one remaining in issue. Allman-Ward said in the statement that “each sukuk has its own characteristics, and the company is only taking action based on legal advice on the unlawfulness of its own specific current sukuk structure which evidently does not apply to other perfectly lawful sukuk structures.”

The CEO said the major issues with Dana’s current Mudarabah Sukuk include that it guarantees a fixed rate of return to certificate holders, it makes the company responsible for any loss of capital, it does not contain a mechanism to reconcile the fixed amounts paid to the certificate holders over time against the actual profit generated by the Mudarabah assets and any capital loss is not reflected in a reduction in value of the Mudarabah assets.

“These terms make our current Mudarabah sukuk contrary to Shari’a and unlawful under UAE law,” Allman-Ward said.

The company said consequences of these findings include that both further profit payments and original principal repayment would be unlawful, invalid and unenforceable, and the unlawful nature of Dana’s Mudarabah sukuk means that a purchase undertaking is also unenforceable under both UAE law and English law.

As part of a potential sukuk deal, the company said its intention is to price a replacement sukuk instrument in a manner consistent with current market yields and in a way that reflects the significant increase in the value of its underlying assets following successful arbitration outcomes.

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

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