Egypt canceled the natural gas deal with Israel as a strategic move in response to Ampal American Israel Corp's lawsuits against the Cairo government, the Israeli company's finance VP said at a meeting with bondholders yesterday. Ampal's main holding is its 12.5% stake in Egyptian gas exporter EMG.
The head of the Egyptian Natural Gas Holding Company announced Sunday that it was terminating its agreement to provide natural gas to Israel due to Jerusalem's "repeated breaching of the agreement."
The announcement, however, has raised speculation that it was intended to force Israel to call off a $8 billion lawsuit. The gas supply has been interrupted regularly since Egypt's revolution more than a year ago, and the pipeline through Sinai has been sabotaged 14 times since.
Egyptian sources said they played no role in the decision by the Egyptian Natural Gas Holding Company, also known as EGAS.
"We're looking into the meaning of the letter we received from EGAS," said VP-Finances Irit Illouz, who was representing controlling shareholder Yossi Maiman at yesterday's meeting. "We're stating very cautiously that this is a legal tactic in response to our suits against the Egyptian government, but I believe we'll know more in the next few days," she said.
"There's no question that this raises awareness in Israel, Egypt and the United States about the problem, which is that for more than a year, nearly no gas has been exported to Israel, and Egypt's government isn't doing enough to protect the pipeline. There's no question that awareness will bring us to normalization."
Yesterday's bondholder meeting had been scheduled before EGAS' announcement; it was being held so bondholders could vote on a debt arrangement. The meeting ended without an agreement.
Ampal has seen its share price fall 90% since the beginning of 2011. Its stock plunged another 19% yesterday.
The company's bond prices also fell, dropping 10% to 37%, pushing their returns well into junk territory of 50% to 350%. The higher the bond yield, the stronger investors' belief that the company won't pay its debts. Ampal owes bondholders NIS 900 million.
Maiman isn't the only one who has lost big on Egyptian gas - Israel's pension funds have lost NIS 290 million on their investments in the pipeline. Most of that money was in pension and provident funds owned by average citizens.
"Investing in the EMG project was essentially an investment in the peace between Israel and Egypt," said a source at one of the institutional investors. The country's institutionals bought a total of 4.4% of EMG's shares from Maiman in 2007 for $90 million.
Funds invested savers' money in the Egyptian gas project both via Ampal bonds and directly via EMG.
All told, the country's institutional investors have lost NIS 290 million on this investment.
For instance, insurance company Harel said it was writing off its entire investment in EMG. As of the end of 2011, it had said its 1.2% holding in EMG was worth NIS 54 million, meaning the company was valued at $1.2 billion. Harel initially invested NIS 100 million. The latest announcement means Harel doesn't expect to get any of that back.
The write-off will have little impact on the insurer's financials, Harel said. It has NIS 34 billion under management, which makes a NIS 100 million write-off minor.
In 2007, shortly before the gas exports began, the Israel Infrastructure Fund, owned by Harel (40% ) and others, organized an investment in EMG based on a market cap of $2.2 billion. The fund itself invested $10 million, and institutional investors bought into the export company, too - Harel invested $27 million, Menora Mivtachim $21 million, Clal $13 million, Psagot $11 million and Phoenix $8 million.
