Oil and gas exploration and producrtion company Ithaca, owned by Delek Group Ltd. (TASE: DLEKG), controlled by Yitzhak Tshuva, last Thursday completed a $500 million overseas bond issue. Under the issue terms, the principal on the bonds will be repaid over five years. The annual interest in the auction was set at 9.375%.
Delek Group said that the bonds were issued with no guarantees whatsoever, and that Ithaca planned to use the proceeds to finance the acquisition of CNSL from US energy company Chevron. A day before the issue, Ithaca also reached agreement with an international banking consortium for additional credit in order to finance the acquisition.
This line of credit is based on $1.65 billion in reserves for Ithaca from the consortium at LIBOR + 3%, putting the average annual interest rate for the total financing package at 6.3%.
Ithaca signed an agreement in late May to acquire CNSL from Chevron for $2 billion, reflecting an effective cost of $1.65 billion, assuming that the cash accumulated between the beginning of 2019 and the completion of the agreement in respect of the assets being sold will total $350 million. CNSL, which has 450 employees, holds licenses to produce oil and gas in the North Sea. Most of its assets consist of 10 oil and gas producing fields and an exploration license.
Following completion of the bond issue, Delek Group said that it planned to inject $300-400 million in capital into Ithaca, and to recruit a strategic partner that will also make a capital investment through some instrument.
In its announcement to the stock exchange, Delek Group stated, "In accordance with the strategy of the company and Ithaca, the company and Ithaca are considering a number of offers to bring investors into Ithaca as part of the plan to offer Ithaca's shares on the London Stock Exchange after the deal is completed. Let is be clear that there is no certainty that partners will be brought in and the deal on the overseas stock exchange will be completed; this is a strategy on the part of the company and Ithaca."
Following the CNSL acquisition deal, Midroog announced 10 days ago that it was putting its current A2 debt rating for Delek Group under consideration with a negative outlook. Midroog said that the acquisition of CNSL from Chevron would increase Delek Group's net debt by an amount in the NIS 500 million-1 billion range, under the assumption that the company would complete the sale of its holdings in Phoenix Insurance for NIS 1.6 billion in the near future (NIS 1.3 billion of which will be received when the deal is closed).
Midroog also predicted that the resources in equity required by Delek Group and Ithaca would amount to $400-500 million. At the same time, Delek Group emphasized that this sum would amount to $300-400 million.
Agreement for the sale of the direct rights to super-royalties
Recent events involving the Ithaca deal caused sharp falls in the price of securities in the Delek Group. The company share price dropped 14% in the last three days of trading last week, while its Series A bonds fell 4.6% in two days, and were traded at a 5% annual yield to maturity. The share price was up 2% today. Following a 20% decline in the share price over the past three months, Delek Group's market cap stands at NIS 6.3 billion.
It was further reported today that Delek Group had signed an agreement to sell its direct rights to super-royalties on its share of the Delek Drilling partnership and Tamar Petroleum in the Tamar and Dalit natural gas reservoirs. The right to the super-royalties was sold to the study funds of the teachers and kindergarten teachers and to the study funds of the high school teachers, seminar teachers, and supervisors for $52.5 million.
If completed, the deal will give Delek Group a net profit attributable to shareholders of NIS 46 million. Under the agreement between the parties, the right to super-royalties will be transferred to the buyers retroactively, starting on April 1, 2019.
Proceeds from super-royalties to be paid during the period starting when the entitlement to super-royalties begins and ending on the completion date of the deal will be deducted from the $52.5 million price of the deal. The agreement also states that the parties will calculate the price on February 1, 2023, which could increase or decrease the price by $2 million.
Published by Globes, Israel business news - en.globes.co.il - on July 21, 2019
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