Kenon Holdings Ltd (TASE:KEN: NYSE: KEN-WI), which was split off from Israel Corporation (TASE: ILCO) in early 2015, is designated for liquidation in 2-3 years after distributing all its holdings in its subsidiaries to its shareholders as a dividend in kind, according to a review published by Psagot Investment House Ltd. analyst Noam Pinko.
Kenon, controlled by Idan Ofer, already took the first step in this direction last year by distributing all its holdings in Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE: TSEM) as a dividend in kind and selling all its options for that company's shares.
Kenon currently owns 100% of the shares in electricity production company IC Power (ICP), 50% of the shares in Chinese auto manufacturer Qoros, 32% of the shares in Zim Integrated Shipping Services Ltd., and 91% of the shares in Primus Green Energy, a startup developing alternative fuel technologies.
Kenon's main asset is ICP, the value of which Pinko estimates at $1.37 billion according to its 2018 projected earnings before interest, taxes, depreciation, and amortization (EBITDA), using a 7.5 multiple on this profit.
ICP is in the process of preparing to offer its shares on the New York Stock Exchange. In Pinko's opinion, the company is likely to hold its offering in 2017. If this happens, it will open the way for distributing ICP shares to the Kenon shareholders, headed by Ofer (59%), and for enhancing the company's value for them. If Pinko's liquidation forecast were also to materialize, it would depend on the ability to find a way to list Zim's shares for trading on one of the global stock exchanges and to seek alternatives for the holdings in Primus and Qoros.
Kenon has already posted huge losses on its investment in Qoros, and has also guaranteed a one billion yuan ($165 million) debt to Chinese banks. Kenon published its third quarter financial reports last week, in which it said that it was "actively looking for deals that will facilitate its continued support for Qoros, but which will not increase its exposure to Qoros, and will decrease it."
In his review, Pinko notes that he is giving Qoros a negative value equal to the amount of Kenon's guarantees for Qoros's debt to the banks, adding, "Kenon may take part in the financing solutions that Qoros is looking for, but will definitely not increase its exposure to Qoros."
Pinko believes that Kenon's share is greatly undervalued because the value of its net assets (after subtracting a $400 million debt) is $970 million, while its market value is only $570 million. In view of the upcoming liquidation, he regards this as sufficient reason for recommending "Buy" for the share.
Published by Globes [online], Israel business news - www.globes-online.com - on December 13, 2016
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