Golar LNG's $575M Convertible Notes Offering: A Strategic Play on LNG Growth with Minimal Dilution

Golar LNG (NASDAQ: GLNG) has executed a masterclass in capital allocation with its recent $575 million convertible notes offering, combining low-cost financing, strategic share buybacks, and targeted investments in floating liquefied natural gas (FLNG) infrastructure. These moves position the company to capitalize on surging global LNG demand while mitigating near-term dilution risks. Let's break down how Golar is structuring its growth play.

The Convertible Notes: A Win-Win for Investors and the Company

The offering features 2.75% convertible senior notes due 2030, with an initial conversion price of $57.53 per share—a 40% premium to the June 25 closing price of $41.09. This structure is key:
- Low Coupon Cost: The 2.75% annual interest rate is far below the company's historic cost of debt, reducing interest expenses and freeing up cash flow.
- Dilution Buffer: The 40% conversion premium means shares would need to rise to ~$57.50 before conversion becomes economically attractive. This shields existing shareholders from immediate dilution, even as the notes fund growth projects.
- Redemption Flexibility: Golar can redeem the notes at par after 2028 if its stock price hits 130% of the conversion price for 20 days out of 30—a scenario that would signal strong execution of its FLNG strategy.

The offering also included a $75 million over-allotment, underscoring investor demand for Golar's story.

Share Buybacks: Reducing Dilution and Boosting Ownership

Golar used part of the proceeds to repurchase 2.5 million shares, trimming total outstanding shares to 102.3 million. This is a shrewd move:
- Offsetting Future Dilution: As FLNG projects like the fourth unit and Hilli's redeployment progress, the smaller share count will help maintain earnings per share (EPS) growth.
- Demonstrating Confidence: Management is signaling belief in the stock's long-term value by shrinking the float while avoiding equity issuance.

FLNG Growth Catalysts: The $13.7B EBITDA Pipeline

The convertible notes and buybacks are funding a multiyear FLNG expansion, with two critical projects advancing:

1. The FLNG Hilli Redeployment to Argentina

The Hilli is being repositioned under a 20-year charter with Southern Energy S.A. (SESA), starting operations in 2027. Key terms include:
- 2.45 mtpa capacity with a $285 million annual EBITDA guarantee.
- Commodity Upside: A 25% tariff on FOB prices above $8/MMBtu adds ~$70 million/year for every $1/MMBtu price increase.
- Regulatory Safety: A 30-year LNG export license under Argentina's RIGI framework, shielding Golar from currency controls and tax changes.

2. The MKII FLNG Conversion (3.5 mtpa)

This unit, converted from the Fuji LNG vessel, is on track for Q4 2028 delivery, with:
- $400 million/year EBITDA and the same commodity-linked tariff structure as Hilli.
- Strategic Synergy: Operating alongside Hilli in Argentina's Gulf of San Matias, the pair will combine for 5.95 mtpa capacity, one of the world's largest FLNG hubs.

Together, these projects form a $13.7 billion EBITDA backlog over 20 years, excluding inflation and commodity upside.

Why This Matters for Investors

Golar's strategy is a textbook example of capital efficiency:
- Low-Cost Financing: The convertible notes' 2.75% coupon and 40% conversion premium minimize dilution while securing long-term funds.
- Share Count Management: Buybacks and debt refinancing (e.g., a $1.2 billion facility for FLNG Gimi) strengthen balance sheet flexibility.
- FLNG Execution: Projects like Hilli and MKII are long-dated, high-margin, and low-risk, leveraging Argentina's vast Vaca Muerta shale reserves.

Risks and Considerations

• Commodity Exposure: Lower natural gas prices could reduce upside from tariff mechanisms.
• Project Delays: Shipyard bottlenecks or regulatory hurdles in Argentina could delay timelines.
• Debt Levels: While manageable now, the $1.49 billion in contractual debt requires monitoring.

Investment Thesis: A Play on Floating LNG Infrastructure

Golar is uniquely positioned to benefit from rising LNG demand, driven by Asia's energy transition and Europe's diversification away from Russian gas. Its FLNG fleet offers:
- Flexibility: Unlike traditional LNG terminals, FLNG units can be redeployed to new markets as demand shifts.
- Scalability: The MKIII (5.4 mtpa) and potential fourth unit projects highlight Golar's ambition to dominate the floating LNG space.

Actionable Takeaway: For investors seeking exposure to LNG infrastructure growth, Golar's convertible notes structure and FLNG execution make it a compelling choice. The 40% conversion premium and share buybacks mitigate dilution risks, while contracted EBITDA streams provide a stable base to ride rising LNG demand.

In a sector where execution risk is high, Golar's progress—from FLNG Gimi's COD to Argentina's regulatory safeguards—suggests management is converting vision into cash flows. This is a company to watch as the global LNG market expands.

Disclosure: The author holds no position in Golar LNG and has no financial ties to the company.