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Case Analysis Report - Essay Example

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In the early years, it was an independent oil business. The two main shareholders were Campbell, who owned 36.56% stake and Roger Evans, the son with 28.43% stake. Open Choke Energy Advisors…
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THE Cameroon Partners: THE Sukuk Bond Affiliation The East Cameroon Partners: The Sukuk Bond The East Cameroon Partners is an oil and gas company that was founded by father and son. In the early years, it was an independent oil business. The two main shareholders were Campbell, who owned 36.56% stake and Roger Evans, the son with 28.43% stake. Open Choke Energy Advisors had 33.00% stake and lastly the BT operating company 1.00% (Cunningham, 2002). In the early 1990 the oil prices were raising and the demand for oil and gas were also rapidly growing. Therefore, the oil companies’ major interest was in building more capacity to pump oil. In 2000, East Cameroon partners acquired a government lease with Conoco Philips Company and were able to purchase two main gas properties assets. Additionally they were given the rights to explore and exploit two gas properties. However, the company required funds to develop and exploit the sites. Thus, it went into an agreement with Macquarie Bank which agreed to finance them with US $45million, with an interest of 15% p.a and 50% equity stake. After the agreement, the reserves were extensive and profitable, so the East Cameroon Company was able to repay the loan quickly. The case study is one that the Macquarie bank is not willing to finance the company, two, and it still owns a 50% stake in the East Cameroon Company.
The East Cameroon Company, Chief Executive Officer (CEO), Campbell Evans established that the company could not move on since they had little control of the company. The bank now had 50% stake. Meaning the original founders could no longer control the business as before. Evans is, therefore, looking for alternative funding options. At first he is more interested in getting the financial support to continue with the exploration (Cunningham, 2002). The most financial proposals he has received are from banks and require equity component. Evans and the other shareholders are not ready to give out more equity to banks. Evans would like to return the company’s shares as before so that they can control the company.
Evans was approached by Bemo Securitisation (BSEC) financier who offered an interesting financial solution. The solution is the use of Sukuk bond. This is an Islamic finance that would allow East Cameroon to reverse Macquarie’s equity stake. Additionally, it would replace it with a high yielding bond-like channel. However, Evans was not certain of how the Sukuk bond works. He therefore, decided to research before making any decision. The Sukuk structure was more complex that what he had thought. One, It consisted of securitizing hydrocarbon sales from the company. Two, the Sharia compliance required the Sukuk to have a large number of components. These components are Cayman Islands Special Vehicle (Cayman SPV), U.S SPV (Cunningham, 2002). The major setback was to raise the money that was to be used to buy the assets. Evans observed that Sukuk was a good financier, but he still had to consider the pros and cons carefully.
In conclusion, it is highly recommended that before entering into an agreement with Sukuk bond financier. Evans and the company have to do a deeper research. Further, according to Cunningham (2002), adopting an agreement that one doesn’t understand could lead to future problems. It is clear that Evans doesn’t understand the Islamic religion. Alternatively, Evans can hire a lawyer with an Islamic background to help his analyse the Sukuk Bond.
Referees
Cunningham, L. A. (2002). Introductory accounting and finance for lawyers. St. Paul, MN: West Group Read More
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