Delek Group to Spin Off Energy Holdings, May List Them on Foreign Exchanges

Restructuring aims to increase conglomerate’s market value and facilitate raising new capital for development of Leviathan natural gas field.

Delek Group announced Tuesday that it was weighing a plan to spin off its energy operations into a separate company that may end up trading on a foreign stock exchange. The move comes as the conglomerate seeks to increase its stock market valuation and raise new capital.

The spin-off would consolidate the group’s gas and oil operations, which have emerged as its most important - but most capital-hungry - business after huge reserves of natural gas were found in the Tamar and Levaithan gas fields, in which Delek has major stakes. Delek is controlled by real estate magnate Yitzhak Tshuva.

“This is an important day for the company and the energy industry in Israel,” said Delek CEO Asi Bartfeld. “The planned restructuring will create a bigger and more diverse investor community to participate in the group’s operations in gas and petroleum exploration and the great poential it has.”

Under the planned restructuring, which is likely to occur some time after it receives regulatory approval in 2014, the new company would trade on either the Tel Aviv Stock Exchange or a foreign stock exchange. Delek shareholders will receive shares in the spinoff company in proportion to their holdings in Delek Group. The conglomerate’s liabilities would either be divided between the existing company and its spinoff, or be assumed entirely by one of the companies.

Delek said the restructuring aims to sigificantly increase the company’s market valuation, which is today about 15 billion shekels ($4.32 billion,) by making it easier for overseas investors to invest in the company’s energy business. The company said the move was likely to narrow the discount at which shares in publicly-traded holding companies, like Delek, trade to their underlying assets.

The spin-off would also make it easier to raise the capital that Delek will need to develop the giant Leviathan field and other energy projects, Delek said.

Delek’s plan echoes one announced over the summer by its fellow conglomerate, The Israel Corporation, to spin off its less profitiable units into a new company, while keeping its two biggest uints - Israel Chemicals and OIl Refineries Limited - under its wing. That move was also described as a strategy to increase the stock market value of the company’s core businesses.

Gil Basan, senior analyst at IBI Brokerage, said the restructuring would make the Delek’s gas business more attractive to foreign investors. “These kind of investors shy away from partnerships [as Delek’s energy holdings are structured] and they don’t like the diversity of holding company Delek Group, which includes many businesses in addition to energy,” he said.

While Basan called the restructuring “positive,” he said it would not bring any immediate increase in the compay’s valuation because its shares are not trading at any discount to its underlying assets.

The Delek Group subsidiaries expected to become part of the new company are Delek Energy, Delek Drilling and Avner Oil Exploration, Cohen Development and its newly formed Navitas Petroleum. It would also hold Delek’s rights in the energy sector. Delek will maintain its holdings in the insurer Phoenix Holdings, the water-desalination company IDE Technologies, Delek Europe, Delek Israel and Delek Automotive Systems, among others.

Albatross