Dana Gas takes offer to creditors off the table in $700m sukuk row

Updated 31 July 2017
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Dana Gas takes offer to creditors off the table in $700m sukuk row

LONDON: Dana Gas has revoked an offer to creditors to exchange its outstanding $700 million Islamic bond for new notes, ending the chance of a consensual resolution to a case that could shape the future of the global Islamic finance industry.
Dana is refusing to repay holders of its Islamic bond, or sukuk, which matures in October. The energy firm said last month it had received legal advice that the bond was no longer Sharia-compliant in the UAE following changes in Islamic finance interpretations over recent years, and was therefore unlawful.
Creditors claim Dana has to pay them back. They argue if the sukuk was legal when the deal was struck, it holds, and if it was illegal then it would mean the company is in default.
The dispute — which now looks set to be decided in the courts — is being closely watched by investors and banks across the Islamic finance industry because it could set a precedent for other sukuk issuers to refuse to redeem their paper on the grounds that it is no longer Shariah-compliant.
Dana, which is seeking to restructure the sukuk, last month outlined a potential offer to replace the bond with new notes with less than half the profit rate of its outstanding sukuk. The company said on Monday that this had been rejected by creditors and that the proposal was now “off the table.” It said it would now pursue “litigation-driven outcomes.”
It now falls to courts in Britain and the UAE to decide whether the sukuk is legal and if the original deal is valid.
“This is a lose-lose for the company and for sukuk holders, as it will draw out the whole process,” said Abdul Kadir Hussain, head of fixed income asset management at Arqaam Capital in Dubai.
In Islamic finance there are a wide range of opinions about what is Shariah-compliant. The compliance, or religious permissibility of an instrument, is decided by the scholars who design instruments and advise investors on what is permissible to buy. Views can change over time.
The Dana Gas case could lead investors to seek multiple fatwas, or religious rulings, endorsing a sukuk.
The case is being disputed in Britain and the UAE because the purchase undertaking for the sukuk is governed by English law, while the gas production assets behind the sukuk fall under UAE law.
London’s High Court is due to hold a full hearing in September on efforts by Dana to restructure the $700 million bond, while a court hearing in Sharjah is scheduled for Dec. 25.
Dana, which is based in Sharjah, started legal proceedings in the emirate last month to seek a declaration on the lawfulness of the sukuk. In mid-June it obtained an injunction from London’s High Court blocking the holders of the bonds from taking action against the company.
Deutsche Bank, on behalf of the sukuk holders, last week asked Dana for $14 million as a sukuk profit payment for the period ending on July 31 — a request that the energy producer refused on the grounds that the sukuk are unlawful.


Japan, EU to sign widespread trade deal eliminating tariffs

Updated 8 min 25 sec ago
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Japan, EU to sign widespread trade deal eliminating tariffs

  • Both sides are heralding the deal, which covers a third of the global economy and more than 600 million people
  • Besides the latest deal with the EU, Japan is working on other trade agreements, including a far-reaching trans-Pacific deal

TOKYO: The European Union and Japan are signing a widespread trade deal Tuesday that will eliminate nearly all tariffs, seemingly defying the worries about trade tensions set off by President Donald Trump’s policies.
The signing in Tokyo for the deal, largely reached late last year, is ceremonial. It was delayed from earlier this month because Japanese Prime Minister Shinzo Abe canceled going to Brussels over a disaster in southwestern Japan, caused by extremely heavy rainfall. More than 200 people died from flooding and landslides.
European Council President Donald Tusk and European Commission President Jean-Claude Juncker, who arrived Monday, will also attend a gala dinner at the prime minister’s official residence.
Both sides are heralding the deal, which covers a third of the global economy and more than 600 million people.
The deal eliminates about 99 percent of the tariffs on Japanese goods to the EU, but remaining at around 94 percent for European imports into Japan for now and rising to 99 percent over the years. The difference is due to exceptions such as rice, a product that’s culturally and politically sensitive and has been protected for decades in Japan.
The major step toward liberalizing trade was discussed in talks since 2013 but is striking in the timing of the signing, as China and the US are embroiled in trade conflicts.
The US is proposing 10 percent tariffs on a $200 billion list of Chinese goods. That follows an earlier move by Washington to impose 25 percent tariffs on $34 billion of Chinese goods. Beijing has responded by imposing identical penalties on a similar amount of American imports.
Besides the latest deal with the EU, Japan is working on other trade agreements, including a far-reaching trans-Pacific deal. The partnership includes Australia, Mexico, Vietnam and other nations, although the US has withdrawn.
Japan praised the deal with the EU as coming from Abe’s “Abenomics” policies, designed to wrest the economy out of stagnation despite a shrinking population and cautious spending. Japan’s growth continues to be heavily dependent on exports.
By strengthening ties with the EU, Japan hopes to vitalize mutual direct investment, fight other global trends toward protectionism and enhance the stature of Japanese brands, the foreign ministry said in a statement.
The EU said the trade liberalization will lead to the region’s export growth in chemicals, clothing, cosmetics and beer to Japan, leading to job security for Europe. Japanese will get cheaper cheese, such as Parmesan, gouda and cheddar, as well as chocolate and biscuits.
Japanese consumers have historically coveted European products, and a drop in prices is likely to boost spending.