Abu Dhabi – Mubasher: Talks between Dana Gas and some local holders of a disputed $700 million sukuk have failed to reach an agreement, sources told Reuters.

The failure of talks will leave a “potentially protracted legal battle as the only available option for now”, according to the news agency.

In 2017, the UAE-based energy firm refused to redeem $700 million of maturing Islamic bonds, assuming they were no longer valid under the Emirati law due to the changes in Islamic financial practice over the past years.

This had shocked the global Islamic finance industry, as some investors were concerned it could set a precedent for other sukuk issuers who might refuse to repay their obligations on the grounds of religious permissibility, Reuters reported.

In June 2017, Dana proposed to swap its sukuk, held by UAE investors and international investors such as BlackRock, with new sharia-compliant bonds, but creditors rejected the proposal, claiming that the terms were unfavorable.

The case has been moved to the Emirati and British courts, on which legal proceedings are maintained in both countries, but a British court ruled in favor of Dana’s creditors in November.

 “The UAE creditors, represented by Dubai-based Arqaam Capital, include National Bonds Corp, an investment company specializing in sharia-compliant financial products. National Bonds is owned by Investment Corp of Dubai, an investment arm of the Dubai government,” Reuters added.

Dana has held talks with UAE creditors because “there has always been the view that local creditors were more open than their international counterparts” to a settlement, according to a legal source familiar with the matter.

Moelis, the firm advising the creditors’ committee, has been aware of the discussions, the sources mentioned.

The sources said that the talks revolved around Dana’s original restructuring proposal from last June and no new, formal proposal was advanced, which is why they have not led to any meaningful result.

 “Discussions were about interest rates, amortizations, conversion rates, but Houlihan didn’t appear to have a mandate to negotiate on these sticky points conclusively,” said one of the sources.

Moelis decided last week not to engage in the talks since they were not leading anywhere, according to two sources.

Meanwhile, local creditors were not aware of such a decision, a third source said.