Hapoalim mulls converting Tower notes to equity

Full conversion will give Hapoalim 17.9% of Tower Semiconductor; Leumi and Israel Corp. may follow suit.

The sharp rise in the share price of Tower Semiconductor (Nasdaq: TSEM; TASE: TSEM) in recent months has not escaped the notice of Bank Hapoalim (LSE: BKHD; TASE: POLI). Sources in the banking system believe that Hapoalim intends to examine the possibility of converting the Tower Semiconductor capital notes that it holds into shares in the company. The bank does not intend to hold the shares after a conversion but to sell them, since only then can it recognize a profit. Bank Hapoalim declined to comment on the matter.

It is also estimated that if Bank Hapoalim starts a process of converting its notes to shares, Bank Leumi (TASE: LUMI) and Israel Corp. (TASE: ILCO), which also hold Tower notes, will follow suit, to avoid their position being diluted. Leumi and Hapoalim received convertible notes of Tower Semiconductor as part of a debt arrangement with the company. Each bank holds 96.4 million capital notes, convertible via a fairly simple legal procedure, while Israel Corp. holds 206 million notes.

Converting capital notes to shares requires approval for listing of the new shares on the Tel Aviv and Nasdaq exchanges, a procedure that takes a few says.

After maximum conversion of their capital notes, Hapoalim and Leumi will each have holdings of 17.9% in Tower, while Israel Corp.’s holding will grow for 9% to 39.2%. The move will substantially dilute the holdings of Tower’s other shareholders, without any cash coming to the company. Theoretically, raising the number of shares should reduce the share price.

Since the beginning of July, Tower’s share price has risen steeply, after the company announced a series of production agreements and raised its guidance for the third quarter. On Friday, Tower closed at $1.2, making it an 850% rise since the beginning of the year.

The capital notes are on Bank Hapoalim’s books at a price of a few cents per share. If it succeeds in selling the Tower shares after conversion, it will post a profit of some $15 million.

Published by Globes [online], Israel business news - www.globes.co.il - on August 30, 2009

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009

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