A deal that could have been handled better.
It’s 2005; in the midst of the GCC IPO frenzy, a new entity was created in Sharjah to take advantage of the abundance of natural energy in the region. By autumn, things were in full swing to go through with the IPO and listing. Finally, in December 2005 and in record time, the company was listed after raising AED288 billion, which incidentally was almost as high as the GDP of the emirate of Abu Dhabi, the fourth biggest oil producer in the world. The list of founders (which includes yours truly) read as the who’s who of investments and oil producers in the GCC. Planes from Saudi and Kuwait were fully booked for days on end and endless queues formed as a wave of tens of thousands of Gulf citizens crossed borders in a new phenomenon to be known as “investment tourism”. There were stories of people spending nights in parks because of unavailability of hotel rooms, due to the high demand for Dana Gas shares. The company, on its part, vaguely outlined plans to import gas from Iran, with plenty of oral but no written conﬁrmations. In any case, a US$2 billion deal was signed with its gas supplier Iranian National Gas Company, and all seemed to be going well until, that is, August 6, 2005. On that date, Iran elected its new leader, the son of a blacksmith, a man of the people who had no intention of allowing his country’s natural wealth to be tied up under what his cabinet saw as an unfair deal that lasted 25 long years. The original deal was signed in 2001 when oil prices were US$18 a barrel, and according to Kamal Daneshyar, who heads the Iranian Majlis Energy Commission, “the below two-cent per cubic metre price mentioned in the agreement is tantamount to the violation of Iran’s rights”. In the same breath, Iran also accused an unnamed middleman of pocketing US$80 million in the deal, a claim that was strangely not pursued by either party.
Flash forward to 2007. Dana Gas was a victim of fate. Its timing couldn’t have been worse, the expectations couldn’t have been higher and the disappointment of investors in the eventual failure of the company to deliver gas two years after it was founded couldn’t have been more dramatic. As we enter the third year of Dana’s “operations”, the picture seems clearer; the shareholders (and probably the board) have come to terms with the fact that the Iranian gas deal is at worst no longer attainable and at best very expensive and unpredictable. The company has started seeking out new investment opportunities so as to put the AED6 billion that it raised into use, rather than let it sit idle in an HSBC Bank Middle East account collecting interest revenues.
In the spring of 2007, the company was kind enough to offer a certain number of its founding members a one-time cash bonus, which it deemed as a “Pioneer Grant” to recognise “the pioneering spirit of the founding members of the management team” with certain conditions.
At the same time, the company called for an AGM and an Extraordinary AGM with an agenda that included increasing the number of serving directors from 15 to 20 and doubling the size of the Russian gas giant Gazprom board as well as an amendment that allowed the now expanded board to sign resolutions by correspondence. This is in addition to the company’s eight-member International Advisory Board that promises on the company’s website that “other renowned industry business personalities from Japan, China and India will be invited to join the IAB to round off its global membership”.
Dana Gas was keen to join the likes of Emaar and other listed ﬁrms and claim the fashionable mantle of an Islamic Shari’ah compliant ﬁrm. The company then “appointed the International Finance Corporation, the private sector arm of the World Bank Group, to assist and advise in implementing a best practices framework in the areas of corporate governance, health, safety and environmental sustainability, as well as corporate social responsibility”. The company also opened an ofﬁce in Al-Khobar and sponsored the World Energy Cities Partnership forum. Basically, they did everything but supply gas.
By December 2006, Dana Gas ﬁnally agreed to pay US$1 billion, 60 percent of all the cash it raised, to buy Centurion Energy International, a Toronto and London AIM markets listed company with interests in Egypt, Tunisia and West Africa. According to the Financial Times, the deal represented a 36.48 per cent premium on the value of the listed ﬁrm, which is equivalent to AED1 billion in premium only. That was the conservative estimate; according to Pipeline Magazine, that deal represents a “55.9 per cent premium to Centurion’s volume weighted average share price for the 20 trading days up to that date”.
In this writer’s opinion, Dana Gas is fortunate to have a board that includes highly experienced professional investors who are sure to make the early hiccups seem like a distant memory in the not too distant future.
This article was originally published in MONEYworks on June 2007. (PDF Download)