Oil Refineries Reach Debt Accord With Banks, Ending Cash Flow Crisis

Losses ballooned to $69.9 million from $21.5 million a year ago, according to third-quarter report.

Oil Refineries Limited, Israel’s biggest petroleum refiner, reached a debt accord with its banks yesterday, removing the threat that its auditors would issue a “going concern” warning in the company’s financial reports.

The accord is a critical piece of the company’s efforts to extract itself from a cash flow crisis. The company, known in Hebrew as Bazan, owes banks some NIS 3.5 billion and another NIS 2 billion to bondholders.

The recovery program management is piecing together, combined with an improvement in its operating performance, is aimed at ensuring that bondholders are repaid on time. It will also clear the way for Oil Refineries to raise capital via a $150 million rights issue.

Oil Refineries’ shares jumped 4.4% in Tel Aviv Stock Exchange trading to close at NIS 1.11. Its bonds aren’t traded.

Oil Refineries’ efforts to avoid a “going concern” warning, a notice appending to a company’s financial reports signaling that auditors believe the company’s survival is at risk, had delayed its publishing third-quarter financial reports. As a result, neither The Israel Corporation, it parent company, nor Bank Leumi, which holds an 18% share in the refiner, had also been unable to release their quarterly financial statements until Thursday.

Late on Thursday, Oil Refineries published its third-quarter report, showing its loss had widened for the three months that ended September 30 to $69.9 million from $21.5 million a year ago.

Under the agreement with the consortium of lenders led by Bank Hapoalim, Oil Refineries will get a two-year grace period in which it does not have to repay the debt. Instead, the company will increase the scope of its factoring transactions to $110 million, with the banks receiving the receipts in place of repayments on the loan.

In addition, Oil Refineries is committed to a cost-cutting program, including layoffs, with the goal of increasing its earnings before interest, taxes, depreciation and amortization, or Ebitda, by $100 million next year.

Tomer Neuberg