Dana Gas reached an agreement with a committee of sukuk holders to restructure and refinance its $700m sukuk, which when finalised in July will end a protracted legal dispute that sent shockwaves through the Islamic finance industry.
“Dana Gas believes that the offer reflects the company’s significantly improved financial position at about 0.3 times net leverage, and removes the risk to all parties of continuing lengthy legal disputes in multiple jurisdictions,” the Sharjah-based company said in a regulatory filing on Sunday with the Abu Dhabi Securities Exchange, where its shares are traded.
Dana Gas said the ad hoc committee of sukuk holders entered into a binding agreement offering them two refinancing options, with the transaction to complete by the first half of July, according to the statement.
Dana Gas has been embroiled in a legal battle over the legality of its sukuk since last year, when it surprised creditors including investment bank Goldman Sachs and the world’s largest asset manager BlackRock by declaring its bonds non-Sharia compliant, citing changes in Islamic finance. The company argued it was therefore not obliged to repay the debt, and has faced legal action from creditors as a result.
As part of the agreement, sukukholders have the opportunity to immediately cash in their claims at 90.5 US cents per dollar of the face value of their holdings. This includes an early participation fee of 2.5 cents if holders sign up within seven days after the tender is issued.
The second option provides holders with the opportunity to receive a partial pay down and exchange the rest into a new sukuk instrument with a deferred payment structure. Under this option, holders agree to tender their claim at 20 cents to the dollar and roll the rest into a three-year security that would pay an annual coupon of 4 per cent. Holders will receive an early participation fee of 2.5 cents if they sign up within seven days after the tender is launched.
The new bonds would have no convertible option – unlike part of the original $700m sukuk.
“We are pleased to have amicably reached a consensual solution...as indeed was always the company’s publicly-declared intention from the outset, which offers sukukholders the opportunity to cash out at a premium to current market prices or – individually solely at their election – to achieve a path to full repayment of the face value of their existing holdings,” said Patrick Allman-Ward, chief executive of Dana Gas.
“The proposed new sukuk instrument to be issued to sukuk holders has been legally verified to be lawful without question,” he added.
The agreement is contingent on various conditions being satisfied, including payment of costs of certain parties and termination of all current litigation, which has been value-eroding to all stakeholders, as well as a release of certain claims.
Dana Gas first announced it would restructure the notes last year, due to delays in gas payments from Egypt and Iraq’s Kurdish region.
Soon afterwards, the company said it no longer considered its two $350m mudaraba sukuk to be compliant with Islamic law and proposed replacing them with new securities that yield less than half the average original profit rate of 8 per cent – sparking a wave of legal action from creditors.
Last August, Iraq’s Kurdistan Regional Government signed an agreement to pay $1 billion to Dana Gas, its parent Crescent Petroleum and partners as part of a settlement of a long-running dispute over payments for gas liquids production in the region.