Sources inform ''Globes'' that Israel Electric Corporation (IEC) (TASE: ELEC.B22) will ask the government for guarantees for raising up to NIS 10 billion in debt on the Tel Aviv Stock Exchange (TASE). The request is 50% more than the amounts previously reported. IEC is preparing a prospectus for a bond offering of NIS 10.1 billion, planned for June.
If IEC's request is approved, the government will be guaranteeing NIS 11.5 billion of the utility's debt, half the amount that the government is permitted to guarantee by law. Currently, the government can guarantee up to NIS 24.7 billion for IEC, 105% of it annual expense budget.
A top Ministry of Finance official told "Globes" in response, "As far as we're concerned, the option of raising capital on the capital market is the least bad alternative, and preferable to raising electricity rates." The ministry estimates that, in practice, IEC will raise less than NIS 10 billion, but that the company wants to lock in the higher amount in advance, so that it will not have to prepare another prospectus should it become necessary.
Capital market sources say, however, that such a large offering is liable to have far-reaching consequences, including crowding out other companies seeking to raise capital on the primary market. Such a large offering is also liable to have an adverse effect on government's regular bond offerings.
Meanwhile, Knesset Finance Committee chairman MK Moshe Gafni (United Torah Judaism) said, "The committee will not approve more requests by IEC for budgets or tax cuts so long as it does not present to the committee an arrangement for discounts on electricity rates for the needy. 'Social electricity' is mandated in the amendment to the Electricity Economy Law."
The Finance Committee today approved NIS 1.5 billion in government guarantees for IEC for a bond offering. The offering is intended to deal with the company's dwindling cash flow and its need to buy more expensive fuel for the generation of electricity caused by the stoppage in natural gas deliveries from Egypt.
Finance Ministry Energy Coordinator Udi Adiri said that IEC would pay NIS 7.7 billion for fuel this year above the amount that it was due to receive through electricity rates. He said that, by law, electricity rates should rise by 38% to finance this extra cost. However, the ministry has agreed to spread this rate hike over three years. Electricity rates will rise by 8.3% this year, generating an additional NIS 1.3 billion for IEC. Debt offerings and other measures, such as cutbacks and the withdrawal of money from the fund for IEC employees' free electricity are intended to make up the difference between this amount and the surplus cost of fuel that IEC must buy this year.
Deputy Accountant General Gil Shabtai says that the government has agreed to postpone IEC's income tax and VAT payments.
Published by Globes [online], Israel business news - www.globes-online.com - on April 2, 2012
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