Will legal issues cut appetite for UAE sukuk?
Abu Dhabi


Legal concerns over some of the debt issuance among the Gulf Cooperation Council (GCC) countries and regulatory issues around sukuk or Islamic bonds could potentially hinder further development of the market, according to an industry report.

“Issuance of sukuk and Shariah-compliant debt instruments, by both the Abu Dhabi government and private companies in the United Arab Emirates (UAE), has also been active.

“However, controversies surrounding the regulation of sukuk and the failure of UAE- listed Dana Gas PJSC — the region’s largest independent natural gas supplier — to honour redemptions of its sukuk to investors raise serious concerns about international investors’ future interest in these instruments,” according to the latest Economist Intelligence Unit (EIU) report on the topic.

Earlier this month, the Saudi Arabian regulator approved the listing of local-currency government bonds and sukuk on the Saudi Stock Exchange, the Finance Ministry said in a statement.

Qatar made its first foray into the international debt market since a group of Arab nations, led by Saudi Arabia, began a punitive boycott of the gas-rich Gulf country on charges of terror finances, which Qatar denies.

The bond sales by Qatar and Saudi Arabia attracted more than US$100 billion (RM392 billion) in orders combined, even though they were priced just before a US led-strike in Syria over the weekend, reported Bloomberg on April 19. In the same report, Bloomberg noted that blighted by political risks in the region, a flood of debt sales and finances that have not recovered fully from the crash in oil prices, sovereign bonds in the six-nation GCC are now attractive compared to similarly rated peers.

“Although Middle East sovereign issuers remain vulnerable to headline risk, there is already a considerable geo-political risk premium baked into their asset prices,” it quoted Brett Rowley, the Los Angeles-based MD for emerging markets at TCW, which manages about US$200 billion. The EIU report, released on April 25, noted that the federal government of the UAE does not have the legal authorisation to issue bonds, but sovereign bonds have been issued at the emirate government level.

Abu Dhabi, for instance, went to the international bond markets in April 2016 with an issuance of US$5 billion.

Dana Gas, which is listed on the Abu Dhabi Securities Exchange, has been involved in a legal dispute with its investors over the restructuring of its two US$350 million sukuk, the report noted.

In 2012, Dana Gas had restructured the Islamic bonds because it was unable to pay US$920 million that it owed to investors. Similarly, in 2017 the company said it no longer considered the sukuk to be Shariah-compliant and announced that it would seek to restructure the debt in order to lower the yield. — TMR