The diplomat Richard Holbrooke, who was probably most famous for his role in bringing the 1990s Balkan crisis to an end, wrote in his memoir The Unquiet American that failures were often more important than successes in his career.
“In diplomacy, as in life,” he wrote, “failures illuminate paths and pitfalls to be avoided”.
The dispute between the Sharjah-based company Dana Gas and its sukuk investors is hardly on a geopolitical scale but Mr Holbrooke’s aphorism holds just as true for the situation the two sides find themselves in.
This is especially the case when seen in the broader context of the world of Islamic finance because there is no getting around the fact that the Dana Gas saga is something of a blot on the copybook for such financing in this part of the world. The question is: how might it illuminate a way forward.
The first thing to recognise is that a bitter court battle would serve neither side.
Despite the fact that the various parties were in court together for the first time early last week - in the English High Court in London on July 5 - the company and the sukuk holders’ representatives seemed to agree by the end of the week that it was best to try and take the heat of the situation.
In the broader Islamic finance debate, the Dana Gas situation is being seen as a test case and has sparked debate about the weaknesses that exist in the system. This is a good thing.
It is not as though there have not been plenty of problems with financing sectors in mature capital markets. Who needs reminding what the shortcomings of mortgage-backed securities wrought?
So, headlines about a “debacle” in Islamic financing are overdone.
There certainly is a need to recognise and address the cracks in the market that the Dana Gas case - and a couple of others before it - have exposed. Khalid Howladar, the founder of Accreditus and an Islamic finance expert, has set out some of the main questions that need to be answered to make sure the nascent US$400 billion market can remain on track.
For their part, Dana Gas management could recognise the role they can play by resolving their situation in a manner that takes into account the broader implications. Sure, their first duty is to ensure the company’s future and to protect the value they see in the company for all of its stakeholders. The chief executive, Patrick Allman-Ward, said as much in his phone broadcast plea to sukuk holders last week.
The best framework for the two sides to agree terms would be one that includes input from the broader sukuk market to ensure it illuminates pitfalls to be avoided for Islamic finance.