Sources inform "Globes" that non-banking credit company Nawi Brothers Group (TASE: NAWI) is taking an interest in the acquisition of a controlling interest in Isracard, controlled by Bank Hapoalim (TASE: POLI). As far as is known, Nawi Brothers has examined the credit card company's activity in depth with an eye towards a possible acquisition. At the same time, there is a long way to go before a deal takes place. No talks are being held with Bank Hapoalim, which is in the midst of holding an offering for Isracard on the Tel Aviv Stock Exchange (TASE). Market sources said that the matter may be raised again after the offering is held.
Bank Hapoalim, managed by CEO Arik Pinto, will not sell all of its shares in Isracard in the offering unless demand is especially high. It will probably retain a 30-50% stake after the offering, enabling it to later sell a controlling interest in the company.
Sources added that private investors are considering participation in the Isracard offering. According to the Bank of Israel's rules, up to 5% of the shares can be purchased without any permit from the Bank of Israel. At the same time, Nawi Brothers will not participate in the offering itself by buying less than 5%. Sources said that the company prefers to wait to see the results of the offering and the company value at which it is held, and then decide whether to try to make a deal for the acquisition of a controlling interest in Isracard.
Furthermore, pushing through such a deal will be a daunting task for Nawi Brothers. It requires obtaining regulatory approval and a control permit from the Bank of Israel, a difficult process, because the Bank of Israel does not easily grant this permit. Acquiring a company the size of Isracard also poses a financial challenge to Nawi Brothers. Sources say that Nawi Brothers would like to make complete the deal without bringing additional partners. If Nawi Brothers acquires only 30% of Isracard's shares, the minimum required for a controlling core, it will be an NIS 800 million deal. The Bank of Israel also imposes restrictions on leverage, so Nawi Brothers will be unable to use external financing to pay for more than half of the deal, meaning that the company will have to put up hundreds of millions of shekels in equity.
Nawi Brothers is one of the largest companies in the check discounting and non-banking credit market, with a NIS 700 million market cap, following a 20% rise in its share price over the past year. The controlling shareholders are brothers CEO Dori Nawi and chairperson Shaul Nawi, who jointly hold 34% of the company's capital in equal shares. Another prominent shareholder is the Altshuler Shaham investment house with 21.8% of the shares.
Most of Nawi Brothers' activity is in check discounting, a conversion deal in which the company's customers receive the money value of postdated checks that they hold. The checks are assigned to the company in exchange for a percentage commission. Since Isracard has large-scale activity in clearing payments to businesses and providing consumer and business credit, potential synergy between the two firms' activity exists.
Nawi Brothers has a fairly high profit margin. Its revenue grew 14% to NIS 109 million in the first nine months of 2018, and its net profit jumped 30% to NIS 57 million.
The average annual interest rate on Nawi Brothers' customer portfolio in January-September 2018 was 7.5%, the same as in the corresponding period in 2017. The company's provisions for credit losses in the first nine months of 2018 were up 4% to NIS 8 million.
Bank Hapoalim is currently preparing an offering for Isracard. It is believed that the amount raised will be NIS 2.5 billion, after Isracard distributed a dividend of over NIS 800 million to Bank Hapoalim. The bank has begun a roadshow for investment institutions, and sources believe that the offering will be completed before the elections. Isracard is Israel's largest credit card company, with a market share of nearly 50%.
Published by Globes, Israel business news - en.globes.co.il - on March 24, 2019
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