The debt arrangement in Israel Petrochemical Enterprises (TASE: PTCH), which involves a NIS 1 billion haircut for its bondholders, overcame another important hurdle yesterday when it gained approval from the Tel Aviv District Court.
Completion of the settlement now depends on the fulfilment of two further conditions. The first is approval by the prime minister for Petrochemical Enterprises to become the sole controlling shareholder in Bazan (Oil Refineries) (TASE: ORL), while the second is the raising of NIS 485 million in a bond offering.
Israel Petrochemical Enterprises is a holding company that currently has a 15.45% stake in Bazan worth some NIS 670 million, and it holds a permit to control Bazan together with Israel Corporation (TASE: ILCO), controlled by Idan Ofer. Petrochemical Enterprises is controlled by David Federmann, Alex Passal and Jacob Gottenstein, but it is classed as insolvent as it debt to its bondholders totals NIS 1.67 billion.
This situation has persisted for nearly a decade, but Petrochemical Enterprises has lately had an opportunity to change its fortunes following a decision by Israel Corporation to sell its 16.7% stake in Bazan. In April this year, Israel Corporation signed an agreement for the sale of these shares in Bazan to real estate group Hagag (TASE: HGG) for NIS 550 million, which opened up the possibility for Petrochemical Enterprises to exercise the right of first refusal awarded to it in the agreement for the control of Bazan and to acquire the shares at a considerable discount on the market price.
In mid-June, Petrochemical Enterprises notified Israel Corporation that it was exercising its right. Under the agreement between the two companies, Petrochemical Enterprises had three months in which to complete the purchase, which meant that it had to raise cash, and also receive the state’s consent to it becoming the sole controlling shareholder in Bazan.
After feverish negotiations between Petrochemical Enterprises’ management, headed by Refael Arad, and the Ministry of Finance, the bond trustees and the controlling shareholders, the sides agreed on a debt settlement that would set the company on a new path. The settlement included a cash injection of NIS 100 million from the existing controlling shareholders and a group of investors headed by Yona Fogel and Michael Bobrov in exchange for a 36% holding in Petrochemical Enterprises (45% fully diluted).
It was agreed that the bondholders would forego debt of NIS 1.1 billion against an allocation of 64% of the shares in Petrochemical Enterprises (55% fully diluted).
Objections dismissed
Last week, the settlement, which had been approved by the bondholders, was submitted to the court. Two objections were filed against it. One was from the Haifa Bay Cities Association, which argued against the transfer of control of Bazan to Petrochemical Enterprises on the grounds that this was liable to thwart the government decision to clear Bazan’s petrochemicals installations from Haifa Bay by 2030. The second objection was filed by Roni Halman, founder and former controlling shareholder of investment house Halman Aldubi.
For their part, the representatives of Petrochemical Enterprises and the bondholders argued that delay in approval for the settlement would frustrate it and result in the liquidation of the company and the loss of hundreds of millions of shekels for it and its creditors.
The court ruled that a procedure concerning a debt settlement in Petrochemical Enterprises was not an appropriate forum for examining the claims of the Haifa Bay Cities Association, and that the problem of polluting installations in Haifa Bay could not be solved on the backs of the company’s creditors.
Following the court’s decision, Petrochemical Enterprises’ bond issue will go ahead, with the institutional stage due to take place this Thursday and the public stage on Sunday next week.
The Haifa Bay Cities Association said in a statement, "We regret the court’s decision, and we will continue to fight using all the legal means at our disposal. We believe that Prime Minister Yair Lapid will stand by his commitment to prevent the continuation of the activity of the petrochemicals industry in Haifa Bay.
"In addition, we are asking the government of Israel to insert into the sale permit a condition concerning the cessation of the petrochemicals activity in accordance with the set timetable, and a stop to the repeated breakdowns until the activity of the plants in the area comes to an end. We find it regrettable that today’s hearing concerned only financial matters and the writing off of the debt, while the health of the public in Haifa Bay was not a consideration."
Published by Globes, Israel business news - en.globes.co.il - on September 6, 2022.
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