Delek Group, the financially ailing energy company controlled by Israeli tycoon Yitzhak Tshuva, said on Monday it was in talks about a merger of its North Sea oil and gas unit, Ithaca Energy, with an unnamed energy company.
The merger would be part of a process of turning Delek into a public company traded in London, Delek said in a statement. But it also appeared to be connected with Delek’s need for cash to cover debt repayments due in 2021. Delek said it expected to receive a cash payment under the plan being considered.
Delek said that in regard to the merger, several international investment banks were involved in the discussions with possible merger partners.
The surprise move comes less than a year after Ithaca acquired the North Sea assets from Chevron for $2 billion – a deal that saddled Delek with enormous debt as global energy prices were falling sharply.
Delek’s woes were underlined again on Monday as it reported a second-quarter loss of 326 million shekels ($97.2 million), compared with a 190 million net profit a year earlier. That brought its first-half loss to 3 billion shekels, cutting its shareholders’ equity to just 1.4 billion shekels at the end of June from 4.8 billion a year earlier.
As in previous quarters, Delek’s auditors attached a “going concern” warning to its financial statement, citing a sharp decline in the value of its assets, a credit rating downgrade, delving shareholders’ equity and the debt repayments it faces.
Delek shares ended down 3.8% at 78 shekels on the Tel Aviv Stock Exchange.
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The second-quarter loss stemmed mainly from two financial transactions – one selling shares in its Cohen Development subsidiary to an investor group at a loss of 235 million shekels and the second a loan to the buyers of its Phoenix Assurance unit at a loss of 90 million.
Delek, which has stakes in Leviathan and Tamar, Israel’s two largest offshore natural gas fields, said quarterly revenue in the Israeli market net of royalties rose 64% to 498 million shekels, mainly due to gas production starting at Leviathan. Revenue rose at Ithaca 177% due to the addition of the North Sea oil revenues.
All told, however, Delek’s revenue slipped to 1.94 billion shekels from 1.96 billion as higher Israeli gas and North Sea revenues were offset by revenue declines from fuel distribution and retail sales in Israel due to the COVID-19 pandemic.
Delek had financial debts of 7.8 billion shekels at the end of June, of which 5.9 billion is due bondholders and 1 billion to banks, mostly Israeli lenders but also to France’s BNP. Its group debt, which adds in all its subsidiaries, came to 13 billion.
The company said it had negative working capital of 6.2 billion shekels, meaning its current liabilities are much bigger than its source of money to repay them. Delek has been working to close the gap over the last few months by selling some 2 billion shekels of assets, which has enabled it to cover some 1.5 billion shekels of debt. It also negotiated debt agreements with bank lenders.