Epsilon Underwriting and Leader Underwriting will lead a NIS 300-400 million debt issue by fiber optic venture IBC (Unlimited) to investment institutions, sources inform "Globes." The issue will be through a private loan or an issue of bonds to be listed exclusively in the continuous trading system. The issue is part of IBC's recovery plan in its new format for activity under the ownership of Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), Israel Infrastructure Fund (IIF), and Israel Electric Corporation (IEC) (TASE: ELEC.B22). IBC wants the money in order to speed up its fiber optic deployment, and as part of the terms for its new revised license.
IBC is beginning to operate not just as an infrastructure company deploying fiber optics for use by players in the communications market on IEC's infrastructure, but for all intents and purposes as a communications operator through concessions received from the Ministry of Communications. It is also waiting for approval of its recent request from the Ministry of Communications to begin selling Internet services to private and business customers.
The request that embarrassed the Ministry of Communications
IBC's request for approval to sell Internet services embarrassed the Ministry of Communications, because just six months ago, the company received a new license on the basis of a business plan that it presented, in which it received extensive concessions. The business plan was designed to move the company forward by means of cooperation with Partner and Hot, which IBC hoped would enter as investors or join as customers. This did not occur, however, and the company is therefore seeking to sell Internet services to private and business customers using different marketing methods. As recently reported by "Globes," IBC made it clear to the Ministry of Communications that failure to obtain a permit to sell Internet packages would make it very difficult for it to raise the debt it needed to survive in the competitive and very difficult market conditions.
The fiber optic venture was originally designed to create a third communications infrastructure in Israel using IEC's existing infrastructure on electrical poles and underground infrastructure. The venture was founded and planned to provide communications infrastructure services to operators only, so that they would not be dependent on Bezeq or Hot. Shortly afterwards it was founded early in the past decade, however, it failed and encountered difficulties, due to a series of prior assumptions that proved false and serious errors made when the company was founded.
In recent years, the venture acted mainly under the auspices of IEC, which did not demand payment of the venture's debts to it. In the past year, IBC chairman and CEO Doron Cohen managed to reach a debt settlement with the venture's original shareholders, get them out of the company, and bring in Cellcom and IIF as the controlling shareholders. At the same time, IBC obtained extensive concessions in the form of elimination of its commitment to universal deployment, which was converted to deployment in only 40% of households in high-demand areas.
A few months ago, former Ministry of Finance budget director Amir Levy became CEO of IBC. He assessed the situation, and quickly concluded that the venture would have to change the terms of its license if Cellcom continued to be its sole customer. This conclusion is what led the company's leaders to request additional concessions from the Ministry of Communications, such as the right to sell Internet services to private and business customers, which the company was not supposed to provide, neither originally nor according to the business plan presented to the Ministry of Communications as part of being allowed to restrict its deployment to only 40% of households in high-demand areas.
The market believes that issuing the permit to sell Internet services will arouse strong opposition among the communications operators in the market. IBC said, "As part of its growth and the expansion of its activity, Unlimited is currently considering a number of financing alternatives."
Published by Globes, Israel business news - en.globes.co.il - on January 26, 2020
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