Yesterday we reported that Dana Gas, the United Arab Emirates’ largest natural gas firm, was set to default later today on its $920 million sukuk, or Shariah-compliant bond.

We cannot overemphasize the significance of this event.

Sukuk have been controversial for some time based on several factors, but chiefly two:

(1) Sukuk involve more fees and charges and less disclosure than conventional bonds. This produces hazards for investors.

(2) Mufti Taqi Usmani, one of the financial jihadi leaders, opined in 2009 that most sukuk were actually NOT Shariah-compliant.

These two factors contributed to a crisis in the sukuk market in 2009. First, many issuers and potential issuers were unwilling to wade into the sukuk marketplace due to the uncertainty created by Usmani’s declaration. Second, the sukuk market fell on hard times in 2009 when there was a rash of sukuk, at least partially exacerbated by the high fees and lack of transparency inherent in their structure. This included one major near-default in the UAE by a real estate company named Nakheel.

Nakheel’s creditors were only saved from the ravages of default when the United Arab Emirates government stepped in.

No such bailout is in the card for Dana Gas. Dana Gas has operations in places like Egypt and Iraq, so the UAE regime doesn’t see its real estate bubble at risk from this default.

And some big Western investment outfits are going to take a bath as a result. The two main exposures are New York’s BlackRock Inc ( and London-based Ashmore Group (

Like we have said so many times before: if you lay down with dogs, you will end up with fleas…



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