The second stage of the offering by Tamar Petroleum, the SPV established by the Delek Drilling Limited Partnership (TASE: DEDR.L) for holding some of the latter's holding in the Tamar natural gas reservoir, was completed yesterday. In the coming days, Tamar Petroleum will acquire 92.5% of the rights in the reservoir from Delek Drilling, which today reported that it would post a $550 million capital gain on the sale in its third quarter reports.
After successfully completing the first stage of the process - a $650 million bond issue - two weeks ago, the Tamar Petroleum share issue encountered relatively weak demand from overseas investors. The equity offering was eventually closed at the minimum price, leaving Delek Drilling with 40% of the shares in Tamar Petroleum.
Delek Drilling was aiming to raise $450 million in the Tamar Petroleum offering, but eventually settled for $200 million, after demand in the issue reached "only" $250 million, including $200 million from investment institutions in Israel, and the rest from overseas. The local institutions spent a total of $170 million on Tamar Petroleum shares, and the rest of the proceeds came from overseas.
Delek Drilling today reported that following Tamar Petroleum's issue of debt and capital, Delek Drilling expected to obtain proceeds of $980 million: $850 million in cash and the rest in equity (40% of the shares in Tamar Petroleum).
Isramco share drops over 2%
Even though the Tamar Petroleum share offering was closed at the minimum price, Delek Drilling can take comfort in the completion of the first stage in the sale of its holdings in the Tamar reservoir. The partnership now has a 22% direct holding in the rights to the reservoir, plus its holdings in Tamar Petroleum.
The Tamar Petroleum share price was derived from a $10.6 billion value for all of Tamar, compared with a previous estimated value of $12 billion. In other words, investors in the offering got a 12% discount on the value of the reservoir in previous deals (the sale of 4% of the reservoir to Harel Insurance Investments and Financial Services Ltd. (TASE: HARL) a year ago). Trading in the Tamar Petroleum share is slated to begin soon, with the share appearing on the Tel Aviv 125 and other indices.
Delek Drilling said today that it would use $323 million for early repayment of four series of bonds (Tamar Bond) issued by its fully-owned subsidiary, in accordance with the terms for the bonds (following this repayment, Tamar Bond will owe $1.2 billion). NIS 6.7 billion, most of the rest of the proceeds, will be distributed as dividends in the coming years after all of Delek Drilling's holdings in Tamar are sold.
Delek Drilling's participation units were down 1.5% on the Tel Aviv Stock Exchange (TASE) today, while the local partners in the Tamar reservoir, Isramco Negev 2 LP (TASE: ISRA.L), was off more than 2%.
Two weeks ago, Tamar Petroleum completed a $650 million issue of dollar-denominated bonds to investment institutions, after demand for the bonds reached NIS 4.3 billion ($1.2 billion). Interest on the bonds, secured with a complete lien on the rights to Tamar, was set at 4.7%, 1% less than the maximum interest set for the tender. The bonds will be repaid in 20 payments from August 2018 until August 2028.
Leader Capital Markets Ltd. (TASE:LDRC), managed by CEO Ranen Cohen-Orgad, led the issue in Israel, while HSBC and JP Morgan led the sales overseas.
Following the completion of the current measure, Delek Drilling will try to enhance its remaining holdings in the Tamar reservoir by signing addition contracts to sell natural gas to customers (Egypt, for example), conducting additional drilling to find oil, and other means. In any case, the partnership will probably allow the capital market to "absorb" the issue over the coming year before continuing the sale of its holdings in the reservoir.
Tamar Petroleum's debt to IEC
Leumi Capital Markets senior analyst Ella Fried writes that the decision to fill only $200 million of the $250 million in orders was undoubtedly due to the optimistic attitude typical of both Delek Drilling and Delek Group Ltd. (TASE: DLEKG) towards the potential of the oil and gas sector in general, and the Mediterranean basin in particular.
"Tamar Petroleum is suitable for some whose assumptions about the sectors are more positive, or someone who, like the bond investors, is interested primarily in making back his investment fairly quickly, and who is less bothered about the leverage," Fried writes. According to her, the bottom line is that "the investment in Isramco is more solid, and its capital structure is more flexible, while its dividend return over the next three years is projected at 40%. In Tamar Petroleum, when the contracts with Israel Electric Corporation (IEC) (TASE: ELEC.B22) are reopened three years from now, the dividends are expected to return 60% of the investment, but Tamar Petroleum will still be left with a debt of 70% of the principal and over 80% of the interest payments. Therefore, if the business turnover improves, it will be an excellent investment. If the prices do not change, it is definitely a reasonable investment."
Published by Globes [online], Israel Business News - www.globes-online.com - on July 18, 2017
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