IEC returning to Israeli bond market after 18-month hiatus

The Israel Electric Corporation is again seeking to raise funds locally, a year and a half after its last bond offering. The company's board of directors authorized a private bond placement of up to NIS 1 billion, to be used to help repay principal and interest of NIS 7 billion due over the next year.

The utility's liabilities include $600 million in bonds that the IEC must redeem at the end of May 2011, which led the company to report negative working capital of NIS 2.2 billion. Two months ago, the Midroog rating agency gave the IEC's bonds an Aa2 rating with a negative outlook.

	An IEC tunnel housing high-voltage conduits, that runs below the Ayalon stream.
	Photo by: Nir Kafri

The electric company finished the second quarter of this year with a net loss of NIS 412 million, primarily due to the shekel's 2.2% depreciation against the foreign currencies in which some of its financial obligations are denominated. This caused its financing expenses to double, to NIS 750 million.

The IEC's revenues for the quarter declined by 1.9%, to NIS 4.25 billion. Since the beginning of the year, revenues are down 17%, despite an economic recovery that produced a 3.2% increase in electricity consumption in the first half and a 7.5% jump in consumption during the second quarter. The revenue declines stemmed from lower electricity rates, which resulted in a 20% drop in average revenues per kilowatt hour.

On the expenses side, the IEC's wage tab for the quarter increased by 24%, to NIS 380 million, and the cost of buying electricity from private suppliers jumped from NIS 27 million to NIS 63 million. Fuel costs declined slightly, despite a 37% increase in the price of natural gas, and general and administrative expenses shrunk by 40%. But the savings were offset by a 15% increase in outlays for sales and marketing, which rose by NIS 25 million.

The IEC finished the second quarter with operating profits down about 50%, to NIS 230 million, and a net loss of NIS 412 million, compared to an NIS 82 million profit in the same quarter last year. The company recorded a net loss of NIS 1.08 billion for the first half of this year.

The company's current liabilities jumped 32% in the second quarter compared to the same period last year, due to a NIS 1 billion increase in the cost of bank credit and a roughly NIS 2 billion provision for future rate adjustments. On the other hand, its long-term liabilities declined by 10%, thanks to NIS 3.5 billion in bond payments and a NIS 1.3 billion reduction in its income tax debt. Its debt-to-equity ratio grew from 3.85 in the first quarter to 3.99 in the second, compared to 4.2 for the same quarter last year.

Cash flow from current operations plummeted by 40%, to NIS 880 million, and investment in fixed assets declined by 13%. As of June 30, the IEC had a cash balance of NIS 4.34 billion.

The balance in its employee pension funds was about NIS 20 billion at the end of the second quarter, while projected actuarial liabilities come to just NIS 17.2 billion. But those liabilities are expected to rise by NIS 2.8 billion once a new pension agreement is signed. Moreover, the employees' provident fund - a separate entity - claims the IEC's pension liabilities are really NIS 21 billion.

The amount of money the company set aside for worker benefits grew by 5%, to NIS 1.9 billion.