Delek Group Ltd. (TASE: DLEKG), controlled by Yitzhak Tshuva, has foregone the outright sale of subsidiary Delek Israel, a fuel distributor, in favor of an investment deal that will supply the group with its liquidity needs under the agreement with its bondholders. Under the deal taking shape, Delek Group will receive NIS 450 million from the Arbel Fund, which it will use to repay the balance of its secured debts to the banks, amounting to NIS 340 million, and thereby release the participation units in Delek Drilling on which the banks have a lien.
Delek Group announced this morning that it had signed an MOU with the Arbel Fund for a payment to Delek Group of NIS 450 million against an allocation of preferred shares in Delek Israel (or another structure to be decided by the parties). Under the terms of the MOU, the Arbel Fund will obtain an annual return of 10% from dividend distributions from Delek Israel's regular business.
The Arbel Fund will be entitled to receive 20% of the shares in Delek Israel at the end of the investment period, in accordance with the terms to be set out in the detailed agreement. Delek Group will continue to control Delek Israel, and will hold 80% of the company at the end of the investment period.
The parties intend, however, to carry out a series of actions to enhance Delek Israel, with the aim of preparing the company for a public offering during the investment period, so that the their holdings could be diluted.
The Arbel Fund will also be entitled to an option on a further 5% of Delek Israel, based on a valuation mechanism to be set out in the detailed agreement. During the investment period, management rights in Delek Israel will pass to the general partner in the Arbel Fund, who will manage the company through the Delek Israel board of directors.
Delek Group said that the current deal held several advantages over an outright sale of Delek Israel at this time, mentioning among other things that the simple deal structure would enable Delek Group to benefit from a cash flow from Delek Israel of NIS 450 million within thirty days.
Delek Group CEO Idan Wallace said today, "We are marking an important milestone in the group's strategy for strengthening its capital and liquidity, in accordance with the understandings reached with the bondholders and the lending banks. The current achievement joins a series of successful actions that we have completed within a few months, in an extremely challenging environment."
Delek Group's agreement with its bondholders stipulates that by the end of the October the company will complete the repayment of its secured debts to the banks and release its holdings in Delek Drilling, most of which will be mortgaged to the bondholders, to which Delek Group owes NIS 6 billion. The company also has to raise debt of NIS 100 million in December 2020 and NIS 50 million in April 2021, in order to repay its bondholders in accordance with the original repayment schedule.
The Arbel Fund was founded by Amir Hessel and Gabriel Low three years ago, and raised NIS 1 billion. Hessel was previously chief investment manager at Harel Insurance Investments and Financial Services Ltd. (TASE: HARL), while Low was one of the heads of the Manof KCPS fund.
Published by Globes, Israel business news - en.globes.co.il - on August 19, 2020
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