Investor offers to inject $250m into Delek's Ithaca

Yitzhak Tshuva Photo: Tamar Matsafi

Even if the investment deal goes through, Delek Group still needs $200 million more to complete its acquisition of Chevron's North Sea oil and gas assets.

Delek Group Ltd. (TASE: DLEKG), which needs $450 million to complete its $1.6 billion acquisition of Chevron's North Sea oil assets through fully owned sub-subsidiary Ithaca, has received a signed proposal for an investment in Ithaca from an international trading firm.

Delek Group's share has been very volatile in recent minutes, going from down 3.5% to up 2% following the report, before finally settling on a fall of 1.08% for the day.

Delek Group reported to the Tel Aviv Stock Exchange that an international trading firm had proposed making a $100 million investment in the equity of Ithaca's controlling shareholder, now fully owned by Delek Group, in return for an allocation of preferred shares. The senior shares will confer a guaranteed dividend return, and will be automatically converted into ordinary shares (4%) when Ithaca makes a share offering at a valuation of $2.5 billion for Ithaca, before money.

The proposal also includes contracting of five-year oil and gas marketing agreements with the trading firm. An advance of $150 million on future sales will be used for Ithaca's working capital. Delek Group said that it was considering the proposal, while also pursuing contacts with other potential investors.

Delek Group, controlled by Yitzhak Tshuva, announced in late May a deal to acquire the North Sea oil assets of Chevron. The capital market responded poorly to the deal, mainly because of its high leverage, which is increasing Delek Group's risk. Delek Group's share price is down 25% since the announcement, including today's 2% rise. Delek Group's current market cap is NIS 5.7 billion.

Even if the proposed investment in Ithaca is successfully closed, Delek Group and Ithaca must still find $200 million more to complete the Chevron deal

Last month, in an attempt to soothe investors, Delek Group announced that it was negotiating with potential investors, including investment funds, international trading firms, and international financial institutions, for a $300 million capital investment in Ithaca in return for an allocation of senior shares in Ithaca.

If the deals are closed in the coming days or weeks, Delek Group will be able to complete the financing for its acquisition deal, after Ithaca raised $500 million in bonds at interest of over 9.3% and additional funds from banks in Europe.

Delek Group added that as part of its preparations for completing the deal for acquiring Chevron's North Sea assets and eliminating its dependence on oil prices, and in order to ensure the projected revenue from these acquired assets, hedging deals had been made for oil prices on 32 million barrels of oil at an average price of $65 per barrel for the next three years. "Even if oil prices fall below an average of $65 per barrel, Ithaca still has over $2 billion in guaranteed revenue during this period," Delek Group stated. Insofar as the price of oil during this period is higher than an average of $65 per barrel, Ithaca will benefit from hundreds of millions of dollars in surplus revenue in addition to the guaranteed revenue, and this can be distributed to the Delek Group, among other things.

The attack in Saudi Arabia gave a big upward push to the price of crude oil and boosted Delek Group's share price by 9% on the following day, but crude oil is currently trading below $59 per barrel, after Saudi Arabia managed to repair the damage to its oil facilities more quickly than expected and prevented any slowdown in its production rate.

Published by Globes, Israel business news - en.globes.co.il - on September 22, 2019

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

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