When is a default not a default? There are actually many answers to that question.
The story so far: Dana Gas, a fuel company based in Sharjah, ran into difficulties receiving payments from its operations in Egypt and Iraqi Kurdistan.
Dana missed a payment deadline on October 31 for a $920 million sukuk (Dh3.37 billion), becoming the first UAE company to fail to pay its obligations on time without renegotiating that payment before it came due.
That did not mean the company had officially defaulted. A three-day grace period was invoked, which bought the company extra time.
At the end of the grace period, a dissolution notice was issued to the London Stock Exchange (LSE), effectively asking creditors whether they wanted to liquidate the debts.
As per the company's prospectus, that is something which occurs after a technical default.
But - and this is a big but - no formal default has been declared by any of the parties involved.
In the meantime, Dana has reached an "in-principle" restructuring agreement, contingent upon regulatory approval and votes called among bondholders and shareholders. That averts a formal default for the time being.
This distinction may seem like splitting hairs, but it carries important repercussions. A company that has formally defaulted may struggle to ever borrow from banks again.
A corporate default is akin to bouncing a cheque and being cut off from the financial system by the Central Bank.
Nor did a formal default occur when Nakheel restructured Dh59.1bn of payments in 2009, sparking a crisis at Dubai World and government support from Abu Dhabi.
Although the company reached a standstill agreement, this was well in advance of the payment deadline.
A default is hugely embarrassing for the company's management and ruinous for their ability to fund themselves.
But investors are more concerned that disclosures made by the company to the Abu Dhabi Securities Exchange (ADX), where its shares are listed, have not matched those made to the LSE, where its bonds are listed.
The morning after bond investors learnt of a vote to dissolve the Islamic bonds, Dana made no mention in its one-paragraph statement to shareholders.
"Dana Gas confirms that its discussions with the committee of the sukukholders are progressing positively, and that the company and the committee are currently negotiating the necessary standstill and lock-up agreement which the parties are working together to conclude soon," the company said in a statement released on Tuesday morning.
The move led the ADX to suspend the company's shares for the second time in the past fortnight while they waited for Dana to update markets.
Making different disclosures to different markets would ultimately damage investor confidence in the company, said Arwa Hamdieh, a co-founder of the Financial Services Association (UAE).
"The company should be giving the same information to all investors, regardless of their jurisdiction," she says.
"The firm has a commitment to give all investors the same information, and not disadvantage others in the GCC and Mena."
Shehab Gargash, the chief executive and managing director of Daman Investments believes disclosure needs to improve in the UAE. "Disclosure among our corporations generally is patchy and needs improvement," he says. "Companies have not yet embraced their obligations in the public sphere."
A restructuring is almost always preferred by banks, although sometimes creditors will swoop on a company with good assets to try and seize them.
For the time being, creditors seem willing to retire the existing sukuk, and issue two new ones - one of which will eventually grant an equity stake in Dana to the bearer.
Until sukukholders, the sukuk's trustee or a credit ratings agency officially calls a default, Dana will fight tooth and nail to avoid calling it such. As such, a formal declaration of default might never be made.
Whether investors will trust the company with their money again is a different question altogether.
[ ghunter@thenational.ae ]
