Sukuk

#Kenya should see #Sukuk as the next frontier of finance

Ongoing development of Islamic finance in Kenya is expected to innovate the financial services sector. One area that will see a hive of activity in the local market will be the introduction of sukuk. The Kenyan government is now preparing to issue the first Sovereign Sukuk with the aim of diversifying sources of funding at competitive rates. Usually, Sukuk derives its financing structure from the nature of the underlying assets available to the originator, regulatory and tax considerations as well as perspectives expressed by the Shariah scholars. However, what may be declared as Shariah-compliant by a team of scholars could be rendered invalid and non-Shariah-compliant by a team of other scholars. This informs the need to have one central Shariah body that regulates the industry to minimise confusion from multiple non-structured Shariah opinions.

Dana #sukuk: why the market is overreacting

The sukuk issued by Sharjah-based Dana Gas and recently denounced as non-shariah compliant will not damage confidence in the Islamic debt markets, as some have claimed. The gas provider's announcement in June that $700 million worth of its bonds are not compliant with shariah law in the United Arab Emirates (UAE) perplexed the market. The firm’s chief investment officer, Mohieddine Kronfol, said that the impact of this restructuring will be insignificant to the wider industry in the long-term. He added that Dana Gas is owed around $1 billion from Iraq and Egypt, Dana Gas is only one issuer in a global sukuk market with over 90 issuers. In his opinion, the media and public attention spent on Dana Gas is out of proportion with what has transpired so far.

Dana Gas describes UK court decisions on #sukuk as favourable

Dana Gas described decisions by the High Court of Justice in London as favourable, as the company seeks to restructure $700 million of outstanding sukuk. On July 5 the High Court upheld an injunction blocking holders of the bonds from enforcing claims related to the securities against Dana. The court ordered Dana to cancel an injunction in a court in Sharjah and to seek a stay of proceedings there. The company remains keen to engage with sukuk holders and reach an agreement on a consensual basis, which is not prevented by the injunctions in place.

Dana gas saga far from over

Last month, Dana Gas tried to impose on investors a restructuring of the payment of its two outstanding sukuk tranches totalling US$700 million. The company got an injunction in the High Court in London restraining sukuk holders from taking any hostile action against Dana. The overriding concern is that if the High Court in London rules against Dana Gas, the matter goes to trial and Dana Gas wins, it would set an appalling precedent that can undermine the integrity of sukuk as a fundraising instrument. Syariah advisories agree that the only solution would be the introduction of a world sukuk standard supported by local laws, an Apex Sukuk Standard, which would give legal and syariah certainty. Any dispute could either be subject to arbitration or recourse to law. Dana Gas re-scheduled yet another conference call with sukuk holders to discuss the matter. The High Court in London scheduled a hearing for September. This saga is far from over.

UAE's Dana Gas aims to propose new #sukuk terms in coming weeks

According to Dana Gas CEO Patrick Allman-Ward, the company aims to communicate proposed terms of a restructured sukuk issue in coming weeks. He spoke to sukuk holders in a conference call, but there was no question and answer session and no immediate response from creditors. In mid-June, Dana stunned creditors by announcing it would halt payments on its four-year sukuk because they no longer complied with changing interpretations of the Sharia code. Dana said it would exchange the sukuk for new Islamic instruments with lower profit rates than the existing paper. Investors and bankers are concerned that other sukuk issuers could imitate Dana in refusing to redeem paper on the grounds that it has lost its sharia-compliance. CEO Allman-Ward insisted that Dana's arguments did not apply to other, lawful sukuk formats. Dana's existing paper features profit rates of 7 and 9%. The new sukuk would provide profit distributions at less than half the rates. Sukuk holders are contesting the plan in courts in London and the emirate of Sharjah.

London court to hear Dana Gas #sukuk case in September

London's High Court plans to hold a full hearing in September on efforts by Abu Dhabi-listed Dana Gas to restructure $700 million of its outstanding sukuk. Dana Gas declared the bonds invalid last month, saying they were no longer compliant with changing interpretations of the Sharia law. The judge upheld an interim High Court injunction blocking holders of the bonds from enforcing claims related to the securities against Dana Gas. However, he imposed restrictions on asset sales by Dana and its ability to raise more debt or pay dividends. The case has worried the Islamic finance industry as it has raised the prospect that other firms could justify not honouring obligations by claiming sharia-based financial standards had changed.

UAE's Dana Gas will try again to hold call on #sukuk restructuring

Dana Gas has rescheduled a telephone call with sukuk holders to this Thursday at 4 p.m. The call would outline the company's proposal to restructure its outstanding $700 million of sukuk. Dana is claiming it must exchange the instruments because they are no longer lawful following changes in Islamic finance. The company had originally scheduled the call for June 21, but on that day it decided to postpone the call. Dana said it made several approaches to an ad hoc committee of creditors to arrange a call but each invitation was declined.

Fitch Rates Bank Jambi's First #Sukuk Issuance 'A(idn)'

Fitch Ratings Indonesia has assigned a National Long-Term Rating of 'A(idn)' to PT Bank Pembangunan Daerah Jambi's proposed Sukuk issuance. The proposed issuance is the bank's first sukuk with a total amount of IDR 120 billion and a maturity of three years from the issuance date. 'A' National Ratings denote expectations of low default risk relative to other issuers or obligations in the same country. Bank Jambi's rating reflects Fitch's view that the bank is important to the regional government of Jambi province on Sumatra island. Bank Jambi is owned by the government of Jambi province and by the governments of various municipalities. Although Bank Jambi is a small bank in the Indonesian banking industry, it has a strong franchise and has an important role in supporting development in the region.

Fitch: Dana Gas case highlights #Sukuk's 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.

Moody's: Dana Gas Shari'ah breech is credit negative for #Sukuk investors

Dana Gas petitioned the English High Court of Justice for injunction after commencing legal proceedings in Sharjah courts to have its Mudharaba Sukuk declared unlawful. Dana Gas publicly stated on 13 June 2017 that its $700 million Sukuk in its present form is not Shari'ah compliant and is therefore unlawful in the UAE. If the company's petitions are upheld by the Sharjah courts, it would trigger a standstill on the two upcoming contractual payments, a credit negative for the Dana Gas Sukuk investors. Although most investors regard the company’s announcement as a tactical move in its debt negotiations, a ruling in favour of Dana Gas would potentially send shockwaves among Islamic finance and Sukuk investors.

Raising funds through #sukuk: The prospects, the drawbacks

#Nigeria announced the issuance of N100billion ($328million) sukuk, which brings to close a process that started last year. The first sign of the process was given last year by Alhaji Mahmoud Isa-Dutse, Permanent Secretary at the Ministry of Finance. He said that sukuk could be linked to a wide range of projects from power plants to railways. The sukuk is a 7-year tenor debt instrument which will go on sale from June 28, 2017, for three days via book building. It will be traded on the Nigerian Stock Exchange (NSE) and the FMDQ Securities Exchange OTC platform. Dr. Abraham Nwakwo, Director General of the Debt Management Office, said the sukuk was part of the plan to fast track the development of infrastructure and engage in project-tied capital raising.

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.

La première émission de #sukuks aura lieu le 15 septembre prochain

Abdellatif Jouahri, gouverneur de Bank Al-Maghrib, a annoncé la première émission de sukuks aura lieu le 15 septembre prochain. Après le lancement en mai dernier de Umnia Bank, Attijariwafa bank a présenté dernièrement à la presse sa nouvelle banque participative, Bank Assafa. Cinq banques participatives ont été agréées par Bank Al-Maghrib en début d’année. BMCE Bank of Africa s’est associée à Al Baraka Banking Group du Bahreïn, la Banque centrale populaire (BCP) au groupe saoudien Guidance Financial Group, et le Crédit Agricole du Maroc à l’Islamic Corporation for the Development of the Private Sector (ICD).

The #Sukuk Investment Opportunity

The #Nigerian Debt Management Office (DMO) is accessing the local market for N100 billion through Sukuk. The first Nigerian Sukuk is a 7-year tenor debt instrument and will go on sale from June 28, 2017, for three days via book building. It will be traded on the Nigerian Stock Exchange (NSE) and the FMDQ Securities Exchange OTC platform. The bond will target retail and institutional investors, while First Bank and Islamic wealth manager Lotus Capital will act as managers for the sale. According to DMO, the introduction of Sukuk is not only a way of raising capital for the government and promotion of greater financial inclusion, it is also part of the plan to fast track infrastructure development. The current manager of DMO, Dr. Abraham Nwankwo will be leaving office at the end of June and the Sukuk issuance is seen as his parting gift.

#GCC governments seek to diversify funding with Islamic #bonds

According to S&P Global Ratings, GCC sukuk issuances jumped 37.7% in the first half of 2017 as governments are seeking to plug deficits amid low oil prices. The rating agency added that issuances of sukuk will not grow at the same rate in the next couple of years, with hurdles such as a lack of standardisation of sukuk rules deterring sales. Mohamed Damak, primary credit analyst at S&P, said the volume of sukuk issuance is expected to remain strong in 2017, but this is likely to be the exception rather than a new norm. 2016 was a record year for regional bond issues in the GCC region, with over $60bn worth of fixed income sold. Last year Saudi Arabia sold $17.5bn worth of bonds in its first international sale and Qatar sold $9bn. Despite the record value of issuances, S&P said that a big funding gap remains. It is estimated at $275bn and about half of that gap is expected to be raised through bonds and sukuk.

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.

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.

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