Market Discounts Tamar Profits
Israeli producer Delek this week sold 60% of its special-purpose vehicle Tamar Petroleum for just $200mn, less than half the hoped-for $450mn, it said July 19.. Demand for the shares was only $250mn and it decided to sell $200mn. Delek Drilling, a limited partnership controlled by Delek Group, will keep about 40% of the new company's stock, though for accounting reasons, it will retain only 12% of the voting rights in the company.
The IPO was an anti-climax after the bond issue two weeks earlier, which attracted orders of about $1.1bn and sold $650bn.
The Israeli IPO handler received orders for $200mn from Israeli institutional investors while the international IPO handlers, J.P Morgan and HSBC, received orders for only $50mn as even foreign banks shunned the unusually profitable energy sector.
One of the reasons for their lack of interest is the expectation that Tamar has reached its peak in terms of profitability and in the next few years, it will have to tackle competition from new natural gas sources that will offer much cheaper natural gas for Israeli customers. According to an Israeli expert, gas prices are expected to fall to about $4/mn Btu in the next few years. Israeli customers pay Tamar Partnership a minimum price of $4.7/mn Btu, while Israel Electric Corporation (IEC), Tamar's biggest customer, pays $5.9/mn Btu.
Tamar Reservoir Value
"The end of the company's issuance (capital and debt), together with the value of the royalties transferred to Tamar Petroleum, reflect a value of $12bn for Tamar reservoir," said Tamar Petroleum in a press release.
However Israeli media saw the IPO's results a bit differently. "Disappointment for Teshuva in Tamar IPO," was the headline in The Marker, a leading economic website, referring to Yitzhak Teshuva, the controlling shareholder in Delek Group. "Demand for $250mn; Will be closed according to the minimum price." In the article the website claims Tamar reservoir's value according to the IPO's results is just $10.6bn, much lower than the $12bn claimed by Delek Group.
One of the biggest takers in the IPO was Harel Group. "After an analytical analysis and comparison with other alternatives traded on the market, such as Isramco and Delek Drilling, we reached the conclusion that this is a cash flow investment that will distribute significant dividends in the coming years and will yield a double-digit yield at a low risk level," Harel said, according to The Marker.
With $980mn proceeds from the bonds issue and the IPO, Tamar Petroleum will buy 9.25% stake in Tamar Partnership from Delek Drilling. The latter is expected to record a profit of $550mn that is supposed to be paid out in dividends to the limited partnership's participations units holders.
Ya'acov Zalel