Ormat Industries (TASE:ORMT) achieved a major success on Friday, which will have a dramatic effect on its future business. Ormat won the auction held by the US Bankruptcy Court Southern District of New York for the assets of Covanta Energy. The Bronitzky family owns 42.6% of Ormat and Clal Industries and Investments (TASE:CII) 19.3%.
Ormat bid against Italy's Enel (NYSE:EN; Milan:ENEI) in the auction's final stage for two California geothermal power stations and 50% of a third. Ormat will pay $214 million for the power stations, after the bidding starting at $190 million.
Ormat has already deposited $40 million to guarantee implementation of the deal. Ormat has signed a $155 million financing agreement with Beal Bank of Dallas, Texas, for a non-recourse loan. Ormat is expected to raise the rest of the money through a $60 million bond issue on the Tel Aviv Stock Exchange (TASE).
Ormat is expected to file a draft prospectus with the Israel Securities Authority in a few days, and the issue is expected to take place in a few weeks. In contrast to Ormat's last two issues of convertible bonds, the company is expected to issue straight dollar bonds in the new issue.
Ormat is due to pay for the power stations by the end of the year, although company sources say that even if the issue is delayed a few weeks, it has sufficient sources of financing to cover an interim period between payment and the bond issue, if it is postponed.
Ormat acquired the following power stations:
- The Heber Geothermal Plant in Imperial Valley, with a 52 megawatt capacity.
- Leasing rights to the Second Imperial Geothermal Company (SIGC), with a 48 megawatt capacity. Ormat had bought SIGC's power stations for $38.5 million before the tender, in order to improve its position in the auction and deter potential competitors.
- 50% of the Mammoth Pacific Power Plants in the Sierra Nevada Mountains, fueled by geothermal brine from the Casa Diablo Hot Springs. Constellation Energy Group (NYSE:CEG) owns the other 50%, which Ormat hopes to acquire in the future for a few tens of millions of dollars.
All the power stations have long-term contracts with Southern California Edison through 2015-22 to supply power. The contracts generate $80 million in revenue a year.
The acquisitions double Ormat's core business of electricity generation and sales. Ormat currently has 250 megawatt electricity production capacity in the US, with another 30 megawatt under construction at its Nevada project. The current acquisition also increases Ormat's orders backlog from $1.1 billion to $3.3 billion.
Ormat expects to report revenue from the acquisitions from the first quarter of 2004. However, because most revenue from power production comes during summer, the acquisitions' contribution will be mainly felt in the second and third quarters.
Ormat is also planning a $25 million upgrade of power stations bought over the past few years.
Published by Globes [online] - www.globes.co.il - on November 23, 2003