UAE

Fitch: Dana Gas Case Highlights #Sukuk Legal Uncertainties

According to Fitch Ratings, credit rating implications for sukuk arising from Dana Gas's attempt to have its mudaraba sukuk declared unlawful will take time to emerge. The impact of the move remains unclear until all relevant proceedings are resolved. Fitch added that sharia compliance typically does not have credit implications for Fitch-rated sukuk. Fitch does not rate Dana Gas or its sukuk. Dana Gas started court proceedings in the UAE to have its sukuk declared unlawful and unenforceable in the UAE. Sukuk regulations have been introduced and updated in several countries in recent years, but standardisation, harmonisation and legal precedents are limited in most jurisdictions. This case could set an important precedent for the relationship between sharia compliance and credit risk, and give greater clarity on enforceability.

Goldilocks Investment builds Dana Gas stake

An Abu Dhabi Global Market fund, Goldilocks Investment, has acquired 5% of Dana Gas. Goldilocks has a reputation of buying companies going through financial difficulties. Goldilocks has recently acquired 350 million shares in Dana Gas, which has seen its share price rise by nearly 70% in the past month. Goldilocks is part of Jassim Alseddiqi's Abu Dhabi Financial Group, a diversified investment company with about US$5 billion under management. Dana Gas has assets in Egypt and the Kurdish region of Iraq that have had good operational results but have suffered from erratic payments. Dana Gas also has an ongoing dispute with holders of its $700 million in sukuk, for which it has taken preemptive legal action to avoid a declaration of default.

Lessons from Dana Gas #Sukuk debacle

Dana Gas invited holders of its outstanding sukuk to open discussions on restructuring the payment. The reason given by Dana Gas was that the sukuk has now been declared non-syariah compliant and, therefore, not valid. The company also proposed to exchange the sukuk with a new four-year enforceable, syariah-compliant instrument. It seems that Dana Gas is trying to restructure cheap on the back of credit deterioration, hiding behind the façade of syariah validity. Moreover, the company has filed for protection in the Federal Court in Sharjah to impose its structuring plan on certificate holders. It is obvious that the sukuk debacle may have serious implications for Dubai’s ambitions of being a premier sukuk origination and Islamic economy hub. The Dana Gas sukuk is a failure of inadequate capital market legal framework, underdeveloped regulatory framework and a serious lack of uniformity.

Arabia CSR Network successfully conducts Middle East's first ever training on global standards for #sustainability reporting

The Arabia CSR Network (ACSRN) conducted the Middle East's first round of training for Global Reporting Initiative (GRI) Standards for Sustainability Reporting. The course covered GRI Standards, including an overview of how to implement these standards. According to Habiba Al Marashi, CEO of ACSRN, the move demonstrates the increasing importance of sustainability reporting. The training focused on the frameworks of the standards, how to apply these in actual reporting and the process of putting together a GRI Standards compliant report. The training will allow the participants to use the right methodology for putting together their sustainability reports. Participants received a certificate each, presented by GRI for successful completion of the course.

Dana Gas’s #sukuk move is a surprising one

Dana Gas’s sukuk move is a surprising decision as it could have a detrimental effect on Dubai's goal of becoming the Global Centre for Islamic Finance. Financial analysts agree that Dana's manoeuvre to invalidate its own sukuk on Sharia non-compliance grounds harms the whole Islamic finance sector. Several questions arise and Dana Gas provides no answer. It is difficult to understand how Dana went from "discovering" the "unlawful" nature of the sukuk to getting injunctions in at least two jurisdictions without actually managing its communications. When DG acts in this way, it does not only potentially harm Dana's creditors but every investor in the UAE and the whole financial system.

#UAE's Dana Gas gets injunction from English court blocking claims on $700 mln #sukuk

Dana Gas obtained an injunction from the English High Court of Justice in London restraining sukuk holders from taking any hostile action against the company. The company obtained similar injunctions from the Sharjah Federal Court of First Instance in the United Arab Emirates as well. Dana Gas announced last week that its outstanding $700 million sukuk were not sharia-compliant and were therefore unlawful in the UAE. The company said it would therefore halt coupon payments on the sukuk, and proposed exchanging the sukuk for new Islamic bonds with lower profit distributions.

Islamic finance #risks raised by Dana Gas case

Dana Gas applies Shari’ah non-compliance as a cause for restructuring. Dana Gas has proposed a restructuring to holders of its $700 million of Sukuk maturing in Oct 2017. Its proposal is on the basis that these Sukuk are no longer Shari'ah compliant because standards of interpretation have changed since they were issued in 2013. Dana Gas is seeking to have its existing Sukuk declared invalid in a UAE court and this court has granted Dana Gas an injunction protecting it from claims until the case is decided. If the precedent of revisiting Shari'ah compliance infects the Islamic finance industry, there is greater risk of a loss of confidence in other markets too. There are many examples of distressed conventional bond borrowers engaging in opportunistic negotiating positions. The result was higher cost of borrowing for them rather than for the broad asset class.

Dana Gas bid to void #debt stuns analysts who question motive

The gas producer's decision to declare its own Shariah-compliant bonds unlawful has baffled investors all over the world. Sharjah-based Dana Gas said it no longer considered its two Islamic bonds totalling $700 million issued four years ago as Shariah compliant under UAE law. The move comes after Dana Gas announced plans in May to restructure the debt. The company is owed about $1 billion from Egypt and the self-governed Kurdish region in northern Iraq. Dana Gas plans to replace the current sukuk with four-year bonds paying less than half of the current profit rates and without a conversion feature. The Sharjah Federal Court of First Instance has issued an injunction while it considers Dana Gas’s application. Dana Gas said it won’t pay its next two profit distributions on July 31 and Oct. 31, and that they will be accounted for as part of the new instrument.

#UAE's Dana Gas invites #sukuk holders to a call to discuss sukuk's "unlawfulness"

Abu Dhabi's Dana Gas has invited holders of its outstanding $700 million sukuk to discuss the planned sukuk restructuring. The energy company plans to provide background on its declaration of the current sukuk's "unlawfulness". Dana Gas announced last week that its sukuk were not sharia-compliant and were therefore unlawful in the UAE.

Mideast Debt: Islamic finance industry frets as Dana Gas deems its #sukuk invalid

The decision by Dana Gas to declare $700 million of its sukuk invalid has raised concern about the safety of sharia-compliant debt instruments in general. Dana Gas received advice that its sukuk were not compliant with the Islamic sharia code and had become unlawful in the United Arab Emirates. The firm said it would halt payments and proposed that creditors exchange the sukuk for new Islamic instruments. Dana has struggled to obtain payments from its production assets in Egypt and Iraq's Kurdistan. With a cash balance of just $298 million in March, it had been expected to have difficulty redeeming its sukuk in October. Mohammed Khnifer, a senior associate at the Islamic Development Bank, said this specific sharia compliance risk was unprecedented and this incident had startled the Islamic finance industry.

Abu Dhabi builds a '#fintech bridge' to Asia

Abu Dhabi is taking ambitious steps to tap into financial technology. The Abu Dhabi Global Market (ADGM) signed a cooperation deal with the Monetary Authority of Singapore. The goal of the arrangement is to spur financial entrepreneurship through mutual exchanges of fintech know-how. Last November the ADGM launched the FinTech Regulatory Laboratory, or RegLab, to provide a platform for foreign players to innovate. So far five companies have been selected to participate. Richard Teng, CEO of the emirate's Financial Services Regulatory Authority, said there was a clear trend toward cultivating sectors besides oil and the cooperation with Singapore is designed to make fintech the driving force of economic diversification. In his view, Asian financial companies have a big market in the Middle East to develop and explore business in wealth management, remittances and other fields.

Financial sustainability imperative to supporting Awqafs

Waqf or the plural, Awqaf, provides funding towards initiatives that promote social and community welfare. Due to various reasons, Waqf had gradually become less popular, but it has now re-emerged as a beneficial force of good within society. In the UAE, a General Waqf Authority for Islamic Affairs and Endowments has been set up by government to coordinate Waqf institutions. The future growth of Awqafs require them to be managed in a sustainable way, that is to run them as modern financial institutions. A lot of Awqaf organisations in the UAE invest in properties and some have surplus liquidity. As a result, today Awqafs are also tapping the capital markets and there are various initiatives to issue Sukuks backed by Waqf land for mosques, schools and orphanages.

Dana Gas receives partial payment of $50m from #Egypt

Dana Gas has received an initial payment of $50 million (Dh184 million) from the Egyptian government as partial payment of its outstanding receivables. This payment represents 18% of Dana Gas Egypt’s total overdue receivables of $283 billion (Dh1.038 billion) as of the end of first quarter 2017. Dana Gas, which pumps most of its gas at fields in Egypt and Iraq, is seeking to recover payments from both countries for overdue bills. The company was owed $1 billion from Egypt and the self-governed Kurdish region in northern Iraq. CEO Patrick Allman-Ward had previously said that the company will not make any new investments in Egypt due to delay in receiving payments. In the first quarter 2017, Dana Gas reported gross revenues of $118 million and net profit of $11 million. Overall group production was 69,900 barrels of oil equivalent per day, 16% higher compared to first quarter of 2016.

#UAE’s Dana Gas begins refinancing talks on $700 mln #sukuk

United Arab Emirates' energy producer Dana Gas has started refinancing discussions with the holders of its $700 million sukuk maturing in October 2017. The company has faced a cash shortage in the last period and is now planning to restructure its dollar sukuk which was issued in May 2013. Dana Gas CEO Patrick Allman-Ward refused to comment. The energy producer in April repaid an outstanding $60 million loan for its Zora gas field project in the UAE to avoid a breach on the facility. Dana is owed receivables of about $1 billion from Egypt and the Kurdistan Regional Government. Its cash balance as of the end of March was $298 million, slightly below $302 million as of the end of last year. To focus on cash preservation, the company reduced its operational and capital spending in the first quarter.

Gulf Islamic Investments expands #investments into lucrative transportation and logistic

Gulf Islamic Investments (GII) successfully completed a Shari’ah compliant growth capital financing round for transportation company Bion Group. The UAE-based Group provides both heavy haul transportation services and the manufacturing of heavy transport equipment. Pankaj Gupta, Co-Founder and Co-CEO of Gulf Islamic Investments, said this partnership was an excellent opportunity for Bion Group to take advantage of the uptrends in the ever-increasing construction sector. Noas Al Rawi, CEO of Bion Group, said that with GII's assistance Bion will improve its services portfolio and increase production capacity. He added that Bion will target the refrigerated transportation sector and further consolidate its position in the country’s construction sector.

Dubai repays $600m #sukuk certificates

The Government of Dubai has announced that the $600 million (Dh2.2 billion) Sukuk Trust Certificates issued on May 2, 2012 reached maturity on May 2, 2017. Upon maturity, all the certificates were redeemed in full along with the accrued profit. According to Abdul Rahman Saleh Al Saleh, Director-General of the Department of Finance, this settlement reaffirms the government’s commitment to deal with its repayment obligations in a proactive manner. It also strengthens the government’s resolve to honour all its financial obligations on time.

CASE STUDY: Etihad Lands Largest #Sukuk Debut in #MENA #Aviation History

#UAE-based airline Etihad Airways tapped the Islamic finance market with the largest ever sukuk issuance in the MENA region’s aviation history. In November 2016, Etihad Airways made its debut on the debt capital markets with a benchmark US$1.5bn sukuk deal. Etihad was initially rumoured to be raising US$500mn, but there was strong demand and the company’s debut US$1.5bn sukuk became the highest rated paper from an airline issuer. The book consisted of high-quality investors from the MENA region, Asia and Europe, creating significant price tension that enabled Etihad to optimize pricing and issue size. Banks dominated the distribution cross-section (77%), while 13% of the notes were allocated to fund managers, 5% to private banks, 4% to insurance and pension funds, 1% to other investors. The 5-year sukuk was launched under the newly established Islamic Trust Certificate (Sukuk) programme and represented a landmark debt capital market transaction.

Baker McKenzie wins major #litigation case for Dubai Islamic Bank

Global law firm Baker McKenzie has successfully acted for Dubai Islamic Bank in its defence of a $2 billion claim brought against it in the English Commercial Court. The claim was brought by Plantation Holdings, a holding company owned by an Argentinian-resident property developer. The allegation was breach of contract related to plot of land on the outskirts of Dubai, which Plantation had planned to develop into a high-end luxury lifestyle and equestrian complex. The Bank took security over the project as part of the restructuring of a $500 million debt owed to it as a result of a complex receivables financing fraud. The case was heard in an eight week trial, with evidence from witnesses from seven jurisdictions. The court ruled that Plantation's principal director had made up evidence and that another of Plantation's witnesses had manufactured documents, Plantation has been ordered to pay 70% of the Bank's costs on the indemnity basis. The nature of the case also resulted in examining the volatility of the Dubai property market and the functionality of its property registration system, as well as the Dubai authorities' approach to financial misconduct.

#GCC #debt issuance likely to swell in 2017 as governments and corporates seek funding

Debt issuance from the GCC is expected to surge in 2017 with sovereign issuers leading while conventional bonds outstripping sukuk both in terms of amounts raised and number of issues. The key drivers to bond issuances in the GCC during 2016, which more than doubled to $66.5 billion (Dh244.5 billion), was primarily the sovereign bond issuances by Saudi Arabia, UAE and Qatar. Saudi Arabia’s first international bond issuance valued at $17.5 billion in October last year was the biggest recorded emerging market bond. Saudi Arabia has indicated further bond issuances in the near term and the Kingdom has a target debt-to-GDP ratio of 30% by 2020 as compared to 13.2% for 2016. Banking sector contribution to bond issuance witnessed a steep decline from 22% in 2015 to 15% in 2016, although the size of the total offering increased by 36% $11.7 billion.

LCRs of Islamic lenders in Qatar comparable to conventional peers

Qatari Islamic banks’ short-term high quality liquidity assets to cover monthly net cash outflow is comparable to those of their conventional peers and their funding pressures are to some extent mitigated by frequent bonds and sukuks issuance by the government, according to Moody’s, a global credit rating agency.

“In Qatar, the LCRs (liquidity coverage ratios) of Islamic banks are comparable to those of their conventional peers. This situation reflects the absence of sizable retail deposit franchises among the Qatari banks, coupled with heightened systemic liquidity pressures that had led to banks relying more heavily on market funding,” Moody’s said in a report. The funding pressures are mitigated somewhat by the frequent issuance of bonds and sukuk by the Qatari sovereign, a situation, which provides local Islamic banks with the same good access to HQLAs (high quality liquid assets) as their conventional peers, it said.
The rating agency found that five of the six GCC countries are Basel III compliant and have introduced LCRs, namely Saudi Arabia, Qatar, Kuwait, Bahrain and Oman; only the UAE has yet to adopt a LCR framework for its banks.

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