Israel's Delek Weighs Spinning Off Tamar Stake Into Publicly Traded Company

IPO would be conducted overseas or in Tel Aviv and would value the new entity at as much as $1.5 billion.

Tamar natural gas rig, located 90 kilometers west of the city of Haifa, Israel.
AP

Delek Group said Tuesday it was weighing spinning off its holding in the Tamar gas field into a new company whose shares would be floated on the Tel Aviv Stock Exchange or abroad, in order to meet a government divestment deadline.

TheMarker has learned that Texas-based Noble Energy is considering the same for part of its Tamar holding in order to reduce its stake in line with government requirements.

Under the plan, which Delek revealed in its second-quarter financial report, the group’s 31.25% would be spun off into a special purpose company formed to hold the stake. The SPC would conduct an initial public offering in New York, London or Tel Aviv.

Shares of Delek Group, which is controlled by Yitzhak Tshuva, ended down 0.8% to 807.80 shekels ($213.02).

The SPC would be valued at as much $1.5 billion (55.7 billion shekels). If listed on the TASE, the SPC would become one of the exchange’s biggest companies, equal to Elbit Systems measured by market cap.

Delek’s plan is to first merge its Tamar holdings, which are held by the two publicly traded subsidiaries Delek Drilling and Avner Oil Exploration into a single company. The SPC, a legal entity formed for the purpose of buying another company or assets, would conduct an IPO to raise capital and buy the Tamar stake from the merged Delek Drilling-Avner entity.

Delek CEO Asaf Bartfeld told analysts the IPO would likely be held overseas.
“It’s a huge number, it’s too big on the Israeli capital market,” he said, regarding the SPC’s expected valuation. “So, we are now checking and we are in negotiation with one of the larger foreign banks to see how we can make it. I guess ... that will be the way that we are going to sell our 31%.”

The SPC would be the largest partner in Tamar — currently Israel’s biggest gas field, although smaller than Leviathan, which is due to go on line within a few years. Tamar, which began production three years ago, has about 310 billion cubic meters of gas and 13 million barrels of condensate.

Tama has been valued at between $8 billion and $15 million. The estimated value of $1 billion to $1.5 billion for the stake the SPC would get from Delek Group is based on the July purchase of a 3% stake in Tamar by insurance company Harel from Noble. That deal valued the field at $12 billion.

The value of the SPC’s stake, however, takes into account that the company will take over some $2 billion in bond debt for the field issued by Delek Drilling and Avner. It also includes royalties equal to 13% of Tamar’s income that Delek Group will continue taking.

In fact, the gas field’s value may be due for a rise. Bloomberg reported Monday that the Tamar partners revived negotiations to sell gas to Union Fenosa Gas for a liquefied natural gas plant the Spanish company operates in Egypt.

The sides are talking about a 15-year contract to deliver 6 bcm of gas annually, 33% above what was agreed in a nonbinding agreement in 2014. The deal was never consummated amid turmoil in Israel over revising the regulatory regime for the energy sector that ended in the so-called gas framework agreement.

The Tamar partners and Union Femosa will sign a contract within a couple of months, Bloomberg quoted an anonymous source as saying. The first gas will be piped to the Damietta liquefied natural gas plant in Egypt as soon as one year after the signing, Bloomberg reported.

The gas framework not only cleared the way for renewed talks but forced Delek Group and Noble to reduce or divest their Tamnar stakes to create more competition in the domestic market. Delek must sell its entire holding in while Noble has to cut its stake to 25% from 36%. TheMarker has learned Noble is weighing putting 7% of its Tamar holding into a SPC and floating its shares.

The SPC Delek plans to create will not sell all its shares at once. The plan is to issue a limited number of shares in an IPO and sell the rest over the next five years. The target share buyers are foreign institutional investors, since Israeli institutions have considerably exposure to Tamar and are unlikely to want more.

Under the IPO’s terms, shareholders would be barred from selling their stock for 12 to 18 months after the IPO.

Delek Group meanwhile reported a jump in quarterly profit, boosted by higher income from its oil and gas exploration and production operations. The energy conglomerate earned 80 million shekels ($21 million) in the quarter, up from 22 million shekels a year earlier. Profit from exploration and production was 72 million shekels, compared to 60 million shekels in the parallel in 2015.