Petrochemicals selling Avgol stake for NIS 420m

The sale should enable Petrochemical Enterprises to meet its commitments for 2013.

Israel Petrochemical Enterprises Ltd. (TASE:PTCH) is selling 45% of Avgol Nonwoven Industries Ltd. (TASE:AVGL) to HFH International BV, a Dutch company owned by Ethemba Capital 12 LP, for NIS 420 million. Petrochemical Enterprises is a holding company controlled by chairman Jacob Gottenstein, David Federman, and Alex Pesel, through Modgal Industries Ltd.

The sale of Avgol should enable Petrochemical Enterprises to meet its commitments for 2013 without the need to raise additional credit or sell its stake in Oil Refineries Ltd. (TASE:ORL). However, to make the NIS 149.7 million in principal and interest payments during the first half of 2014, the company will need to receive a dividend from Oil Refineries. Petrochemical Enterprises estimates that Oil Refineries will distribute a NIS 675 million dividend during the period, of which its share will be NIS 206.1 million.

Petrochemical Enterprises posted a loss of NIS 93.7 million for the second quarter of 2012, mainly due to poor results by Oil Refineries.

Petrochemical Enterprises' bonds are traded at junk bond status with yields of over 50%, although today's announcement boosted prices for the bonds by up to 5.2%, sending the yields below 50%. The share price rose 3.7% in morning trading to NIS 3.76, giving a market cap of NIS 110 million.

Ethemba Capital will pay $0.78 per Avgol share for a total of $106.8 million. Petrochemical Enterprises will also be eligible for an additional payment of up to $0.122 per Avgol share, or $16.8 million, if the company's earnings before interest, taxes, depreciation and amortization (EBITDA) exceed $65 million in 2013, and Petrochemical Enterprises will receive the full additional payment if Avgol's EBITDA reaches $75 million in 2013.

Some of the shares that Petrochemical Enterprises is selling to Ethemba Capital will be bought from other Avgol controlling shareholders who jointly own the stake with Petrochemical Enterprises.

Petrochemical Enterprises says that it expects cash flow of NIS 275 million from the sale, and a pretax profit of NIS 75 million. The company could receive up to an additional NIS 70 million, if Avgol achieves the 2013 EBITDA targets set out in the agreement.

Petrochemical Enterprises CEO Eran Scwartz said, "The sale of Avgol is an important step by the company in challenging times in the financial markets. Since we acquired Avgol in 2006, it has achieved strong growth, expanded its production capacity, and entered new markets. This is reflected by the more than 250% return on investment.

"The sale of Avgol should meet Petrochemical Enterprises' financial needs through the second quarter of 2014, which will strengthen our ability to deal with the current economic reality ahead of the completion of strategic plans at Oil Refineries in the near future, especially the clean fuels production plant, and the switchover to natural gas in the second quarter of 2013."

Published by Globes [online], Israel business news - - on October 2, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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