RAM Ratings held dialogue with experts to dissect Dana Gas risks

Published on 12 Sep 2017.

Share Tweet Email

RAM Ratings and global market players have been closely observing the unfolding chronicle of Sharjah-based gas producer Dana Gas PJSC. The market is buzzing over concerns about the potential spillover effects on the growth of the USD2.0 trillion Islamic finance industry. The injunctions from the Federal Court of First Instance in Sharjah, UAE and Commercial Division in the High Court of Justice in the British Virgin Islands (BVI) and the High Court of Justice in London, UK respectively to prevent sukuk holders from taking action against Dana Gas have further fuelled apprehension that the case may threaten years of hard work to push sukuk into the mainstream financial markets.

On 29 August 2017, RAM organised a dialogue with industry experts - Datuk Dr Mohd Daud Bakar (founder and executive chairman of the Amanie Group) and Mr Madzlan Hussain (partner and head of Islamic financial services practice at Zaid Ibrahim & Co, a member of ZICOlaw) - to discuss the Shariah and legal issues pertaining to Dana Gas. The event was moderated by Ms Ruslena Ramli, RAM’s head of Islamic finance, and attended by investors as well as other market practitioners. 

According to Datuk Dr Mohd Daud, the Shariah issue is isolated to the mudharabah contract of Dana Gas. The principles of partnership contract consider the performance of the joint venture, which in this case involves the going concerns of the company that has been affected by market conditions. Nevertheless, the mudharabah contract is in principle still regarded as a debt instrument and, therefore, does not absolve the issuer from its financial obligations or timeliness of payments. “Establishing a balance between Shariah requirements and the commercial aspect of a sukuk structure remains a delicate balance,” highlights Datuk Dr Mohd Daud. He adds, “Whatever the outcome of Dana Gas, it will undoubtedly serve to improve the existing Shariah framework in the GCC. The merits of adopting a centralised Shariah framework can only strengthen the Islamic financial landscape.”

From a legal perspective, Mr Madzlan points out, “The drafting of the legal documents in line with the applicable laws plays a crucial role in protecting the interests of the parties involved. Considering that transactions such as the Dana Gas sukuk would require its various legal documents to be governed separately under the laws of multiple jurisdictions (namely English law, UAE law and BVI law), therefore each party would need to look out for its own interests especially during times of distress. As such, it is in everyone’s best interests to carry out their due diligence in making their own judgement, taking into account not only the Shariah and legal but also the credit risk and availability of a credit rating.”  

Summing up the event, Ruslena commented, “The crux of the issue for Dana Gas is believed to be mainly driven by credit risk. Malaysia, thanks to its robust Islamic finance ecosystem, adopts a centralised Shariah governance framework which mitigates an issuer from challenging the Shariah sanctity of sukuk contracts that have been approved by the Shariah Advisory Council of Malaysia’s Securities Commission.”

As we await the final judgement on Dana Gas to be made public by the respective Courts, the lessons learnt can foretell how future Shariah governance will play an increasingly more important role supporting the sustainability of the Islamic finance industry. 

 

Media contact
Ruslena Ramli
(603) 7628 1010
ruslena@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2017 by RAM Rating Services Berhad