‘Inaccurate to raise case as Islamic finance issue’

DUBAI: Nothing in Islamic finance or the United Arab Emirates’ (UAE) laws regarding syariahcompliant debt has changed since Dana Gas PJSC restructured its sukuk four years ago.

“What makes the sukuk illegal now?” asked Rizwan Kanji, a partner at law firm King & Spalding LLP.

When the gas producer started negotiations with creditors in 2012, the issue relating to mudarabah structures was “clear and settled”, said Kanji.

Since then, there had been no changes in Islamic finance or related UAE laws, so if the company’s claims that its US$700 million (RM3 billion) bonds were illegal now, then they were illegal when they were issued, he said.

Dana Gas said last week it no longer considered its two securities syariah-compliant under the UAE law. A court in Sharjah has since barred bondholders from taking any action against Dana Gas until it reviews the company’s application to declare its debt “unlawful and unenforceable”.

Dana Gas was also granted an additional injunction from High Court of Justice in the British Virgin Islands on June 13, according to another statement.

The company has filed a preemptive suit in the High Court of Justice in London “to protect its interests against any hostile action” by sukuk holders.

The following are highlights from an interview with Kanji:

What’s the controversy?

“It was in 2007 that Sheikh Muhammad Taqi Usmani, an Islamic scholar who was chairman of AAOIFI (a Bahrain-based institution that issues syariahcompliant accounting and auditing rules), indicated that Islamic equity structures, such as mudarabah, can’t be used to build fixed-income instruments where the profit payments and principal were guaranteed.

“It’s fair to say that mudarabah structures for fixed-income deals stopped after 2007, except that they were and continue to be used in equity-like sukuk, such as Tier I offerings by financial institutions and similar hybrid securities by companies.”

Can you explain the

difference?

“Sukuk can be either debt-like or equity-like. Historically and particularly pre-2007, the mudarabah Islamic structure was utilised in structuring fixedincome like issuances, where the profit component and principal amount to an extent was guaranteed, irrespective of the performance of the underlying mudarabah

assets.”

Is Dana Gas’s sukuk illegal

according to UAE law?

“It is well-established that where UAE law contains specific provisions and codes, local courts will give effect to that provision. In the absence of any UAE law, would provision then turn to a syariah court? The point by the company suggests that all conventional banking and interestbearing financing in the UAE would be illegal if the nation’s laws don’t address them specifically, because they don’t comply with syariah principles.

“Dana Gas is understandably trying to restructure the commercial terms, but it’s extremely unfortunate and inaccurate that a credit and restructuring issue is being wrapped and presented as an Islamic finance issue.” Bloomberg