Communications company Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) has completed the auction for investment institutions in its share offering. Demand yesterday totaled NIS 575 million, leading to a decision by the company to increase its offering to NIS 280 million. Since the number of offered shares was increased, the number of options will also be increased. Epsilon Underwriting led the offering. The public part of the auction will take place tomorrow.
The share price in the institutional part of the auction was NIS 23.10, or an effective price of NIS 22.52 after deducting a 2.5% fee for preliminary commitment. The effective price was therefore 11% higher than last Thursday's closing price and 8% higher than yesterday's closing price. Cellcom's share price has fallen 42% this year due to intensifying competition in the mobile telephony market sparked by the entry of Xfone, a new competitor.
Cellcom's controlling shareholder, Discount Investment Corporation (controlled by Eduardo Elsztain) announced that it intended to participate in the offering by buying at least enough shares to preserve its current voting rights in the company - 45.5% of the offering. Cellcom had NIS 954 million in cash and a net debt of NIS 2.6 billion (mostly long-term debt) at the end of the first quarter.
Proceeds from the offering designated for fiber optics
The proceeds from Cellcom's offering are designated for continuing its fiber optic development. Cellcom is in the last stage of its investment in the IBC fiber optic venture; it is waiting for approval from the Ministry of Communications for a change in the venture's license. If this is obtained, Cellcom will acquire control of the venture, thereby diluting the stakes of the other IBC shareholders. Cellcom's plan is to invest in the venture together with other concerns, primarily institutions, and to take advantage of Israel Electric Corporation's (IEC) (TASE: ELEC.B22) infrastructure to extend the deployment of the venture, which is capable of competing with Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ). Together with the venture, Cellcom is investing independently in fiber optic deployment. Part of the offering proceeds are designated for this purpose.
Cellcom is waiting for the end of the hearing to enable the venture to deploy fiber optics among 40% of the users. Universal deployment as required under the current license out of the question as far as Cellcom is concerned; it will not invest in such a venture. The Ministry of Communications is agreeing to amend the license because it regards it as important and therefore published a public hearing before a final decision about changing the license is taken.
At the same time, the S&P rating agency today ratified Cellcom's debt rating for expanding its existing bond series. The rating was set at ilA plus; it also refers to an expansion of the Series 11 bonds by up to NIS 220 million in the framework of a future private placement announced by Cellcom a year ago. Cell reported at the time that it had signed an agreement with Israeli investment institutions to purchase bonds in July 2018 at NIS 1.011 per bond, while the bonds bear 3.55% annual interest.
Published by Globes [online], Israel business news - www.globes-online.com - on June 25, 2018
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