Dana Gas Plans Profit Rate Cut on Sukuk in Restructuring Twist

  • Company to replace sukuk with new Shariah-compliant securities
  • New sukuk to have tenor of four years, no conversion option

Dana Gas PJSC plans to more than halve profit rates on $700 million of its Islamic bonds after they were found to be non-compliant with religious law, adding a new twist to a debt restructuring initiated in May.

The United Arab Emirates-based energy producer said on Tuesday in a filing that it proposes exchanging $350 million of 9 percent certificates and $350 million of 7 percent exchangeable certificates with a new four-year security paying profit "at less than half of the current profit rates and without a conversion feature."

"Due to the evolution and continual development of Islamic financial instruments and their interpretation, the company has recently received legal advice that the sukuk in its present form is not Sharia compliant and is therefore unlawful under U.A.E. law," the company said. "A restructuring of the current Sukuk is necessary to ensure that it conforms to the relevant laws for the benefit of all stakeholders."

The current restructuring is the second for the debt since 2012 and comes as the company awaits almost $1 billion in payments from Egypt and the Kurdish-region in northern Iraq, where it produces much of its energy. The company this month named Houlihan Lokey Inc. as financial adviser to assess options for the sukuk and Squire Patton Boggs LLP to provide legal counsel.

The latest proposals are being presented to bondholders on a call on Tuesday, the company said.

“This is the start of the restructuring process and I don’t think this is going to be where we end up,” Usman Ahmed, the head of investments at Emirates NBD Asset Management Ltd., said by phone from Dubai. “I am sure the ad-hoc committee will weigh this proposal and may look to counter.”

Dana Gas said its next two distributions scheduled for July 31 and Oct. 31 cannot be paid now that the existing sukuk is deemed unlawful but will be accounted for as part of new sukuk instrument. Dana Gas had about $298 million of cash on hand at the end of March.

The new profit payments will comprise a cash and payment-in-kind element and the sukuk may be repaid either in whole, or in part at par, prior to its maturity without any penalty, the company said.

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