Ormat Tech raising NIS 600m in unrated bonds

Ormat Technologies will be raising NIS 600 million in a private placement of unrated dollar-denominated bonds with Israeli institutional investors. The placement is being handled by Apex Underwriting.

The Nasdaq-listed company, which builds and runs geothermal power stations around the world, probably chose Israel because it anticipates that the rate of interest will be low.

The company, a subsidiary of Tel Aviv-listed Ormat Industries, will not be providing collateral to back the bonds because of a negative pledge to its creditor banks, meaning it pledged not to encumber its assets.

	Ormat's geothermal power plant in Costa Rica
	Photo by: Courtesy of Ormat

The private placement will apparently take place next week.

The question of how the Ormat group should finance its investments has been a point of dispute between its controlling shareholders, the Bronickis, and minority shareholder Gazit, headed by Chaim Katzman and Dori Segal.

Taking advice - in advance?

Segal has openly talked about the advantages of raising money through bond issues rather than borrowing from banks, which demand liens on the power stations and cash flow from the stations to back the loans. Borrowing from banks rather than investors constrains the company's financial flexibility and reduces returns for shareholders, Segal said.

That comment was made a month after the traditional conference call with investors following publication of Ormat's first-quarter financial statement, in mid-May 2010. And at the time, CEO Yehudit Bronicki said that Ormat Technologies was gearing up to raise hundreds of millions of dollars through an issue of unrated bonds. The company also meant to raise $100 million in long-term financing from investors, she said.

About a month later, the leaders of the Gazit real estate group launched an attack on Ormat's managers, specifically assailing their financial management.

In response to the Gazit group's comments, the Ormat board of directors said that during the last two years, the company had raised $211 million in project financing and $317 million in credit lines and loans, which it had exploited at a weighted annual cost of just 3%. Regarding Segal's specific claims, Dita Bronicki said that direct financing by power stations was through nonrecourse loans, which reduced the company's overall risk.

That said, the bond issue will diversify the Ormat group's sources of financing. It owes banks $203 million in long-term loans, some of which are backed by power stations - specifically in Guatemala and Kenya. Group subsidiaries owe $235 million in unsecured loans, and have credit lines of $158 million. The group has borrowed about $20 million from institutional investors and the parent company has lent $10 million to subsidiaries.

The company declined to comment for this article.