Two months after renewable energy company OY Nofar Energy (TASE: NOFR) signed a memorandum of understanding to buy the rights of the Noy Fund (one of the main shareholders in OY Nofar Energy) and its partners in the Megalim solar energy project in the south of Israel, for NIS 580 million, OY Nofar Energy has announced the cancellation of the deal. OY Nofar Energy stated that the cancellation came after the negotiations between the sides "did not mature into a binding agreement, and the sides decided not to proceed with the deal."
The Megalim project comes with a debt of NIS 2 billion. It represents one of the Noy Fund 1's main investments. The fund was raised in 2011, and close to concluding the realization of its assets.
The deal between OY Nofar and the Noy find aroused widespread criticism, amid a sense that it was designed to rescue the fund, on preferential terms, from its investment in the highly leveraged project. It is not impossible that the main reason for the cancellation of the deal now is the criticism voiced in the business press, and not necessarily financial information discovered in OY Nofar's due diligence examination.
The main thrust of the criticism was that, despite the ramified business relationship between the buyer and the seller, the Megalim deal was not classified as an insider deal requiring approval by a majority of the minority shareholders in OY Nofar Energy at a shareholders meeting, a move that was cleared with the Israel Securities Authority. The Noy fund is the second-largest shareholder in OY Nofar Energy, with a 20% stake. OY Nofar chairperson Ofer Yanai owns 38% of the company.
Evidence of investors' negative view of the proposed deal is the sharp rise, of over 20%, in OY Nofar's share price on the announcement of its cancellation.
Shortly after the MOU between OY Nofar and the Noy find was signed, in an apparent attempt to blunt the criticism, OY Nofar reported that Altshuler Shaham might join as a partner in the acquisition, and that it intended to examine the possibility of bringing other investment bodies into the deal, but the subsequent performance of the company's stock indicated that this was not enough to gain investors' support for it.
Israel's largest solar energy installation
Megalim is a thermo-solar installation, with a steam boiler atop a tower at the center, at which are directed an array of helio-static mirrors that concentrate the sun's rays. The steam drives turbines that produce electricity. It has an installed output of 121 megawatts, making it the largest income-producing solar power installation in Israel.
Construction of the project was completed in 2019, when it was connected to the national power grid and began commercial operation under a 28-year BOT (build, operate, transfer) agreement with the State of Israel. The Noy Fund holds 40% of the Megalim project, located at Ashelim in the Ramat Hanegev Regional Council. The remaining 60% are held by financial institutions.
The installation supplies power to the national grid at the high price of NIS 0.85 per kilowatt, a legacy of the period in which the agreement with its developers was signed. This is about five times the NIS 0.175 price per kilowatt in the state's more recent agreements with developers of new solar energy projects.
The Noy Fund holds 40% of the rights to Megalim and institutional investors hold the remaining 60%. Megalim operates as a BOT project with a concession agreement for 28 years, ending in 2044. The installation supplies electricity to the grid at NIS 0.85 per kilowatt compared with NIS 0.17.5 per kilowatt in more recent solar energy tenders for the construction of new projects.
The project was built at a cost of NIS 2.8 billion, using technology that is now considered outdated and inefficient.
Published by Globes, Israel business news - en.globes.co.il - on September 5, 2021
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