Not Islamic enough? Why a sukuk issuer now claims its ‘Islamic bond’ isn’t worthy of the name

When are Islamic bonds not really Islamic? If you’re Sharjah-based energy company Dana Gas, the answer is: whenever the company says so. In June, the company announced that it no longer considered its two Islamic bonds, issued in 2013 and valued at $700 million, to be Shariah compliant under United Arab Emirates law. After Dana Gas made the claim that its debt is “unlawful and unenforceable,” a UAE court stopped bondholders from taking action against the company pending its review of the case. Market observers see the move by Dana Gas as a shrewd move to avoid its current obligations and cut costs as it focuses on preserving cash following years of difficulty collecting on outstanding payments from clients in Egypt and the Kurdish region of Northern Iraq. Bloomberg reports that the company is owed about $1 billion from Egypt and Kurdistan and had about $298 million of cash on hand at the end of March. Rather than inconveniencing equity owners in the company, executives appear to have instead opted to press its sukukholders to agree to a restructuring of terms that, according to Dana Gas, are more in keeping with the principles of Islamic finance but are also lower-yielding