Dana Gas Sukuk lawsuit could make issuers more cautious
By Mohammed Khnifer, Islamic Debt Capital Market Banker at the Islamic Development Bank group
While this unfolding event could be an isolated incident, issuers would be more cautious for upcoming issuance. This incident has startled our Islamic finance industry and brought back the memory of Goldman Sachs Sukuk debate in 2013.
Noting that the industry has moved forward (ever since) by implementing notable reforms regarding banking scholars and putting in place some efforts to avoid conflict of interests. I do not think the existing Sukuk issuance would be affected. Even pricing wise, I do not think investors would demand premium on the Shari'ah or legal risk. Maybe some investors would feel better if they see two Fatwas on the same Sukuk (from different lead arrangers).
This specific Shari'ah-compliance risk is unprecedented for the following unique reasons. First, technically speaking, the technical default will happen and it would be due to non-payments of two profit rates, however the recent court verdict by UAE court means the investors cannot view it, legally speaking, as technical default. Second, reversing a previous Shari'ah pronouncement/approval (Fatwa) for the previous Sukuk that was issued in 2013.
I think the slashing of the profit rate (to less than half) of the current rate has something to do with the Shari'ah and legal feedback. Dana will find it difficult to convince the investors to accept such rate. Therefore, everything is on the table and the investors would be concerned as they might not end up with friendly restructuring terms.
I think Dana Shari'ah board will play a role in the Shari'ah side during the restructuring stage. Overall, it is unfortunate to see Dana put its interest first with no regards to the potential reputation risk that this case will bring to the Islamic finance industry.