Banks to demand huge capital injection into Oil Refineries

The banking syndicate will demand that Israel Corp. inject a larger amount of capital into the company than planned under the pending rights issue.

Next week, the banking syndicate which lent money to Oil Refineries Ltd. (TASE:ORL) will meet its executives to try and reach a deal for rescheduling the company's debt in view of its cash flow crisis. Sources inform ''Globes'' that the syndicate, which lent the company NIS 3 billion, will demand that Israel Corporation (TASE: ILCO) will inject a larger amount of capital into the company than planned under the pending rights issue, as a condition for the rescheduling.

Oil Refineries is controlled by Israel Corp. and Israel Petrochemical Enterprises Ltd. (TASE:PTCH). In October it announced a streamlining plan to cut costs by $100 million in 2014. The plan includes layoffs and a $150 million rights issue. The syndicate which lent Oil Refineries the money to build its hydrocracking plant and for current activity, comprises Bank Hapoalim (TASE: POLI), Bank Leumi (TASE: LUMI), Israel Discount Bank (TASE: DSCT), Mizrahi Tefahot Bank (TASE:MZTF), Union Bank of Israel (TASE: UNON), Amitim nationalized senior pension funds, Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), and Harel Insurance Investments and Financial Services Ltd. (TASE: HARL).

Israel Corp is the only party from which a capital injection can be demanded, which is why the banks are conditioning rescheduling Oil Refineries' debts on a larger capital injection by the company. A top source at one of the banks told "Globes", "If Israel Corp. acts like it's acting at Zim Integrated Shipping Services Ltd., and won't inject capital into Oil Refineries, Oil Refineries will collapse."

Another banker, who is unafraid of rescheduling Oil Refineries' debts, said that the company's business was financially justified, and that management problems were the reason for its current shape. He added, however, "With all due respect to the recovery plan, and the planned layoffs, there must also be a capital injection by the controlling shareholder."

Israel Corp. said in response, "We do not comment on matters beyond notices to the TASE."

Published by Globes [online], Israel business news - - on November 4, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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