This is big news, both in the world of finance and in that of, well ... Islamic theology. In May of this year, [I'm sorry I'm late to this table] a company headquartered in the United Arab Emirates, Dana Gas, declared that $700 million of its sukuk bonds were, simply, invalid. It obtained a preliminary injunction against creditor enforcement. That may have been an opening negotiation ploy in a sense -- Dana coupled this announcement with an exchange offer, proposing to give its creditors new bonds for the old, with a haircut of more than half the value of the old. Jason Kilborn calls this an "existential crisis" for the whole field of Islamic finance, or Shariah-compliant finance, of which these bonds were an example. Does Dana Gas propose to change the rules -- rules that supposedly represent God's will, by its own sayso? Well, no. Not exactly. But kinda. Here is Kilborn's take: http://www.creditslips.org/creditslips/2017/06/dana-gas-and-an-exist...
Posts
I remember taking a Corporate Finance course in law school. I retained a few things therefrom, for example, a sense of the sharp legal distinction between the rights of debtors on the one hand and the rights of owners of equity on the other. There was some material too about friendly versus unfriendly takeovers, and the ways in which the latter might be resisted by the target company's board. But what I remember most vividly about the course was a discussion of the Miller-Modigliani theorem. This is the hypothesis proposed by the two named economists, Merton H. Miller and Franco Modigliani, that a rational corporate management will be indifferent as to whether it raises money by issuing debt or by issuing new stock. The debt/equity distinction, as important as it was in law, was trivial in economics. Or so the economists said. [ Investopedia contains a fine article explaining the basics.] I was very struck by this M/M theorem, and not just be...