Delek unit Ithaca to raise $700m debt

Yitzhak Tshuva Photo: Tamar Matsafi
Yitzhak Tshuva Photo: Tamar Matsafi

The roadshow for the bonds in Europe ended yesterday and will move to the US next week.

Energy company Ithaca, a fully owned subsidiary of Delek Group Ltd. (TASE: DLEKG), controlled by Yitzhak Tshuva, is conducting a roadshow in London and New York. The company plans to raise $700 million from investment institutions from Israel, Europe, and the US through a bond issue without collateral, sources inform "Globes." JP Morgan and BNP are leading both the roadshow and the issue, which is designed to pay for part of the huge deal for acquiring Chevron's North Sea oil and gas assets. Leader Capital Markets, Barak Capital, Menorah Mivtachim, and Excellence are leading the issue in Israel.

The roadshow in Europe (London, Amsterdam, and Paris) ended yesterday, and next week (until July 17) Ithaca's management will present the company's activity to investors in New York, Boston, New Jersey, and the West Coast. When the roadshow is completed, the company will price the bonds, determine their duration, and set their interest rate for the issue. If the issue is successful, Ithaca will probably offer its shares on the London Stock Exchange.

Ithaca is an oil and gas operator focused on development and production in the North Sea. Delek Group acquired 20% of Ithaca, which was then listed in Canada and the UK, in October 2015, and fully acquired the company and delisted its shares in 2017. The acquisition cost Delek Group $590 million.

On May 30, Delek Group announced that it was acquiring CNSL, the operating company of energy giant Chevron. CNSL owns 10 producing oil and gas assets. The price of the deal was $2 billion, minus the cumulative cash flow from the beginning of 2019 until the scheduled closing of the deal in September, which will probably push the price down to $1.65 billion. Once the deal with Chevron is completed, Delek Group plans to hold an offering for Ithaca on the London Stock Exchange.

Delek Group said that the acquired wells had a daily production capacity of over 60,000 barrels of oil and P2 proven reserves of 131 million barrels. The existing licenses also have 2C potential reserves of 45 million barrels.

Projected cash flow of $3 billion in three years

After the deal is completed, Ithaca's daily production capacity in the North Sea will increase by 300%, from 20,000 barrels to 80,0000 barrels of oil. Ithaca's average production cost is $18 per barrel. At the same time, the company's proven reserves will increase to 225 million barrels. Ithaca will likely serve as an operator for four of the 10 acquires assets.

Delek Group adds that the reservoirs acquired in the deal will generate an estimated $3 billion EBIDTA in the next three years (based on the latest operational data). Ithaca has $2.2 billion in accumulated losses for tax purposes, which it plans to use to boost its profits from the revenue and the anticipated profits from the new reservoirs.

Delek Group also announced that Ithaca's likely financing structure for the deal would be composed mainly of reserve-based lending (RBL) from an international banking consortium on non-recourse terms for Ithaca and Delek Group, a banking bridging loan, and its own resources.

On the day on which the deal was signed, Delek Group CEO Asi Bartfeld said, "From a local energy company, Delek Group will become an international energy company, with a substantial volume of activity in the international markets. The deal will significantly increase the group's production capacity and generate substantial cash flow for Ithaca amounting to hundreds of millions of dollars. Completion of the deal will give Delek Group a total production capacity of over 160,000 barrels of oil a day in the North Sea and the Mediterranean Sea."

Delek Group share price up 23% this year

Delek Group's share price is up slightly today, and has gained 23% in the past year, boosting its market cap to NIS 7.2 billion. Delek Group yesterday reported that it was going ahead with another divestment measure with respect to the Tamar natural gas reservoir. The group is negotiating with the advanced training funds of the schoolteachers and kindergarten teachers for the sale of its rights to super royalties from the reservoir resulting from its holding in the Delek Drilling partnership and the Tamar Petroleum company.

If the deal, which is subject to various contingencies, is completed, the advanced training funds, headed by chairman Eyal Gabay, will pay Delek Group $53 million, and the rights to super royalties from the reservoir will be transferred to the funds starting on April 1. The parties agreed that a final examination and accounting would take place at the beginning of 2023, which could either add $2 million to or subtract $2 million from the price.

Published by Globes, Israel business news - - on July 11, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Yitzhak Tshuva Photo: Tamar Matsafi
Yitzhak Tshuva Photo: Tamar Matsafi
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