Why Everyone's Talking About Dana Gas's Sukuk

A decision by a Middle Eastern gas producer to declare its own Shariah-compliant bonds unlawful has baffled investors in the $2 trillion Islamic finance industry, Bloomberg News reported. Sharjah-based Dana Gas PJSC said Tuesday it no longer considered its two Islamic bonds totaling $700 million issued four years ago as Shariah compliant under the United Arab Emirates’ law. A court in Sharjah has since barred bondholders from taking any action against the company’s securities until it reviews Dana Gas’s application to declare its debt “unlawful and unenforceable.” “As creditors we understand that this is a liquidity and a payment issue not a solvency issue, but clearly the company is trying to squeeze sukukholders to the benefit of shareholders and that is a strategy that will end up hurting everybody down the road,” said Abdul Kadir Hussain, the head of fixed-income asset management at Arqaam Capital Ltd. Even if there were potential developments in Islamic finance that raised questions on the structure, “it is still a debt instrument and money they have borrowed,” he said. Read more.