In a deal that could be valued at 1 billion shekels ($280 million), Delek Group is weighing a plan to sell the royalties it is entitled to from its Delek Drilling subsidiary to investors, TheMarker has learned.
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Known as overriding royalties, the money is paid to Delek Group from revenues generated from the Tamar gas field and are paid out before Delek Drilling pays dividends to the holders of its participation units.
The royalties have amounted to 3% of revenues until now but are due to rise to 13% now that Delek Drilling has earned back the cost of developing Tamar.
Delek Group, which is controlled by Yitzhak Tshuva, faces a government deadline to divest its 31.25% stake in Tamar by 2020 and has already begun the process by selling off 9.25% to a newly created company called Tamar Petroleum.
The projected spin off of the royalties, however, isn’t connected with the government requirement but is part of the group’s strategy is making a complete exit from Tamar.
The sale would also help Delek Group pay down debt and release capital it could use for new drilling project. Since the royalties are listed on its books at nil, their sale would yield the company a one-time game of 1 billion shekels, assuming it can fetch the price it’s seeking. As of June, Delek Group’s equity was 4 billion shekel, so the sale would boost it by 25%.
Sources said Delek Group hasn’t yet decided what form the royalty spin-off will take. One option is to create a special purpose vehicle, like Tamar Petroleum, and list it for trading on the Tel Aviv Stock Exchange, they said.
The second is to sell them directly to Israel institutional investors. That option is faster and easier than creating and listing an SPV and right now is the preferred one of the two, sources said.