“Once you work on a specific energy industry, you will get to know it. You build a track record in it so the next time you pitch … it’s easier to get deals,” says Joude Badra, former deputy head of investment banking at Bemo Saudi Fransi Finance (BSFF).
In March, Bemo Securitization (BSEC) and BSFF announced two private placements of debt for the amounts of $21 million and $25 million for Dubai-based regional drilling rig subcontracting company Sakson Petroleum Services Holding, which they had been contracted to secure. Each debt instrument went toward fully financing a drilling rig, one in Algeria and one in Iraq’s Kurdistan. The financiers were Lebanese banks, with the debt raised for the rig in Algeria from one single bank, and the Kurdistan rig money raised as a club deal between three banks.
Sakson Petroleum Services Holding
Since its 2006 founding in Egypt, Sakson saw rapid expansion with projects from oil and gas multinationals such as Tullow Oil, Dragon Oil and Oil Search Limited. First managing drilling contracts, the company started purchasing rigs themselves and moved its head office to Dubai in 2013, explains a board member who wished to remain unnamed.
In 2011, equipped with only one rig of their own, they were thinking of growing the company, he says. In 2012 the company saw a capital increase with Capital Trust Group’s EuroMena Fund II taking a 12 percent stake in equity for a $20 million investment. According to the board member, the money was used as a down payment for two loans in 2012 that allowed them to buy two rigs that year and another in 2013. Sakson funded another rig in 2013 independently, bringing their rig arsenal up to five.
He goes on to explain that Sakson’s cash inflows mostly come from drilling contracts. The company works as a subcontractor on blocks of land for drilling or exploration commissioned by multinationals. It currently has drilling operations in Iraq’s Kurdistan region, Turkmenistan, Algeria, Kenya and Ethiopia.
The total of $46 million in financing brought Sakson’s rig arsenal up to 10, seven of which are owned by the company and three of which are rented, according to the BSEC and BSFF team (see box). The duo are currently working on a third mandate for a rig which will go to Algeria.
For each rig, BSEC and BSFF created a special purpose vehicle — Sakson 1001 Offshore and Sakson SK 605 Offshore — with Sakson as the majority shareholder, explains Nada Hilal, senior analyst at BSEC’s Investment Banking Group. The creation of these companies facilitated the process of financing and was beneficial to Lebanese banks. “You have here an opportunity that is a Lebanese company so it’s easy to lend because of the jurisdiction and legal issues, but it has activities in several other countries,” says Badra, who was with BSFF at the time of the deal.
Looking farther afield
Venturing into oil was part of a mutual strategy to get into doing deals in different sectors and with different products. Last December, the two entities announced the acquisition of a minority stake in farmland firm GLB Invest by Beirut-based M1 Group’s subsidiary M1 Harvest, a deal on which they had acted as joint sell-side advisors. BSEC also recently closed a securitization deal for Dima Healthcare.
“We are mainly strong at securitization but we are expanding to equity, mergers and acquisitions, as well as debt raising,” says Hilal. According to her, this was BSEC’s first private placement of debt and first deal in an oil and gas service company.
BSFF, for its part, is looking to diversify its offerings across various sectors. Since its establishment in Syria in 2004 as a joint venture between BEMO Lebanon and Banque Saudi Fransi, most of the BSEC team has relocated, leaving the Syrian office practically empty, according to Badra. BSFF’s investment banking team has since operated from Lebanon, collaborating with BSEC on several ventures to expand the latter’s offerings to include various financial products.
Explaining the decision for diversification, Badra says, “there’s no point [being very specialized] in a country that doesn’t have sophisticated capital markets and isn’t very competitive.” But he acknowledges that it does give them a good position moving forward as Lebanon over the next couple of years is poised to begin exploration for offshore oil and gas. Lebanon’s hydrocarbons sector is still in the pre-bidding stage for exploration and production sharing contracts, as multinational companies that have been approved to bid wait on the government to ratify two decrees that would enable the process to begin. In the event of a discovery, banks could play a role in financing oil and gas services — a role that would be made easier with experience in the sector.
