"A very aggressive price means a sharp drop in returns," said an infrastructure industry source in response to the Noy Infrastructures and Energy Fund's offer to buy from the government 280,000 conversion certificates exercisable for 49% of Road 6 (the Cross-Israel or Yitzhak Rabin Highway) for NIS 1.4 billion. The Noy Fund, for its part, swears that its critics will eat their hats.
This is the Noy Fund's first investment since it was established on May 1 to attract institutional and private investors to the energy and infrastructures sectors.
The Noy Fund targeted Road 6 as its first conquest. The toll road also symbolizes the closing of a circle for Noy Fund chairman Pinchas Cohen. When he was CEO of Africa-Israel Investments Ltd. (TASE:AFIL), he headed Derech Eretz Highways Ltd., which built the main section of the road.
"My intentions are peaceful," Cohen told "Globes". "I'll be happy to be a partner in the Cross-Israel Highway alongside Israel Infrastructure Fund (IIF) and Shikun u'Binui Holdings Ltd. (TASE: SKBN)."
Noy Fund's partners in its winning bid for Road 6 include top investment institutions Psagot Investment House Ltd., Menorah Mivtachim Holdings Ltd. (TASE: MORA), Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), DS Apex Holdings Ltd. (TASE:DSAP), The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5), and Eliyahu Insurance Company.
The tender's results are a major achievement for the government. The price that the tenders committee, chaired by Deputy Accountant General Gil Shabtai, obtained for the option, which does not include a control premium, creates substantial value. It also points to excellent timing for the sale by the government, which has been on the agenda since 2006.
However, it should be remembered that Noy Fund's offer made the difference between success and failure. The other bidders in the tender - Shlomo Eliahu, Yaron Zelekha's Jordan Group, and Amitim (the nationalized senior pension funds) - only bid to buy part of the option, which reflected a value for Road 6 that was 15% less than Noy Fund's offer.
The answer to the question how Derech Eretz's current shareholders - Shikun uBinui and IIF, which own it in equal shares - will react will be learned in 30 days, the deadline to notify the government if they will match Noy Fund's offer in order to keep their stakes. As of now, they are deliberating alternatives, all of which look good. If they do nothing, they will receive NIS 240 million - their share of the strike price of the option - and Noy Fund will become a minority partner in Derech Eretz with a 49% stake.
If Shikun uBinui and IIF exercise their rights, they could receive the returns that the aggressive Noy Fund promises its investors. Shikun uBinui and IIF's third alternative is to sell 20% of their stakes on market terms to the Noy Fund or another party. If the Noy Fund is so enthusiastic about Road 6, Shikun uBinui and IIF may also get a good price from the toll road.
Published by Globes [online], Israel business news - www.globes-online.com - on July 18, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011