Korea National Oil Corporation (KNOC) is close to arranging the loans needed to launch a formal £1.7bn offer for Dana Petroleum as the UK oil explorer battles to convince its shareholders to push for a higher offer.

KNOC, South Korea’s state oil company, has letters of commitment from a group of lending banks and will deliver them to Dana’s advisers possibly as early as Saturday, people familiar with the situation said. The acquisition loan, which is being arranged by KNOC’s own finance team through mostly Asian banks, is required before it can make a firm offer under UK takeover law. Dana last week argued that negotiations could not progress until it had been given assurances about the Korean state company’s ability to finance an offer.

Tom Cross, chief executive, this week visited most of Dana’s 10 largest shareholders to discuss the Korean approach alongside Philip Dayer, a senior non-executive director. Schroders, Dana’s largest investor with 13 per cent, has publicly called for the board to recommend the putative £18 a share offer. After meeting with Mr Cross on Tuesday its position remains unchanged, according to people close to the talks.

Two top five investors, however, supported Dana management’s request for KNOC to provide evidence that funds are in place before allowing due diligence to begin, although they are keen for Dana to negotiate. A separate top 10 institutional shareholder said: 'We think £18 is not the right price for the whole business. Maybe it is for the production assets, but not the exploration assets. Dana wants to engage with the Koreans, but at the moment we have a quasi-hostile situation, and that is not the best way to do things.'

Dana’s large shareholders include BlackRock, JPMorgan, Scottish Widows, HSBC, Legal & General and Allianz. Over 10 per cent of the shares are held by arbitrage hedge funds that have bought shares in recent weeks with the aim of profiting from a possible deal.

A senior Korea-based industrial source said KNOC had been left 'perplexed' by Dana’s questioning of its access to funds. 'KNOC is a 100 per cent state-run company with various funding sources available. It has a very good track record. It is somewhat perplexed by the position of Dana’s board of directors,' the person said.

Source: Financial Times