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Banking

Islamic investors lap up first oil and gas sukuk

The recent sale of the first Islamic compliant securitization originated in the US is likely to open up a new source for the sukuk market, bankers believe.

The $165.67 million sukuk, originated from Texas-based East Cameron Partners, has achieved several firsts – as well as being the first such deal to come from the US, it is also the first ever Islamic securitization rated by S&P, and the first securitization embedding Shariah-compliant hedges. East Cameron Partners’ reserves are located in the shallow waters offshore the state of Louisiana.

Merrill Lynch acted as bookrunner on the deal and Lebanon-based bank BSEC structured it. The transaction has a two-tier structure, with a purchaser SPV located in Delaware to acquire the assets, and an issuer SPV in the Cayman Islands that issues the sukuk. The structure is designed to mitigate the main risks of the transaction, including reserves, production, price, offtaking and event risks.

The sukuk was priced at par and pays investors an annual return of 11.25% on a quarterly basis. It will be repaid from the proceeds of the sale of hydrocarbons to offtakers pursuant to an overriding royalty interest to be obtained from the originator in the related properties.

Diversification

Bankers say that the Islamic structure makes sense for issuers that have plenty of conventional debt outstanding or wish to diversify their funding sources.

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