Dana takes loss in sukuk fight

21 November 2017, Week 46, Issue 716

Dana Gas’ first legal hearing – stemming from its attempts to have its own sukuk declared illegal and unenforceable – have ended ignominiously for the company. Justice Leggatt, in a judgement issued on November 17, concluded that all of the grounds on which Dana was contesting the case were “unfounded”. 

As such, he continued, the purchase undertaking was “valid and enforceable in accordance with its terms”. Dana owes US$300 million and US$350 million under two sukuks, which are similar to bonds. The company alleges that these financial instruments infringe principles in UAE law that forbid usury. 

The judge went on to say Dana’s interpretation of the purchase undertaking was “untenable and flatly inconsistent with its express wording”. He went on to say the contract had been drafted in such a way that it took into account the chance that the UAE aspect could be found to be invalid. 


The company’s sukuk is regulated in both the UK and the United Arab Emirates. The ruling from Leggatt limited his findings to those of English law and does not seek to make any findings on UAE laws. However, given that the purchase undertaking is a product of English law, and it being legal for a contract to guarantee a return from an investment and receive compensation for the use of money, this is a valid and enforceable contract, whatever the UAE finding may be. 

This split jurisdiction has also led to some problems in the case, with various injunctions making progress and leading to numerous delays. A UAE court issued a ruling forbidding four parties from participating in the trial, with BlackRock issuing a counter-injunction, via the English court, in mid-September, to prevent further injunctions. 

Dana Gas did not respond to requests for comments on the English finding. However, Andrew Wilkinson from Weil, Gotshal & Manges, a law company representing the sukukholders, said the ruling “vindicates the position we have taken from the start regarding the validity of the purchase undertaking and Dana Gas’s payment obligations under it. We hope Dana will now come to the table to discuss possible consensual solutions and avoid further value destruction.”

The purchase undertaking effectively compels Dana to pay out a sum of money to the sukukholders at the end of a definite period. Dana has taken the position that this purchase undertaking guarantees the holders and removes the risk of a loss of capital – which it reports is inconsistent with the prohibition of usury. 

A statement from Dana in May of this year said it had been unable to meet its payment schedule and would begin talks on restructuring its debts. In mid-June, its public position changed, with the company then saying the sukuks were no longer believed to be legal. 

The company posted a net profit of US$102 million in the third quarter, it said in mid-November, with production of 67,000 boepd, of which 40,000 boepd came from Egypt. 

Dana has expressed the opinion that, given the allegedly illegal nature of the sukuks, previous payments it has made might have to be paid back to the company from holders. 

Edited by

Ed Reed


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