Citi Bank Blocked from Delek Share Sale

US Citi Bank has been blocked from selling 12% of Delek Drilling shares, in the wake of their dramatic fall in value in the last few weeks. It has stake as security for a $57mn loan, and can sell it if the borrower cannot repay on demand when the price falls below a certain level.

Delek Group, which owns 59% of Delek Drilling, won an injunction from the regional court in Tel Aviv on the grounds that the price was too low. Delek Drilling has about 22% of the Tamar 45% of the Leviathan gas fields offshore Israel as well as 35% of Aphrodite gas field offshore Cyprus.

Through Delek Drilling, Delek Group is part of the monopoly in Israel's natural gas market, where prices remain high despite the crisis in the world's energy markets. However, Delek Group's shares and bonds have fallen with the oil price.

Last year, Delek Group made a bet on oil and purchased oil assets in the North Sea from Chevron for $1.75bn, realising shareholder Yitzhak Teshuva's ambition to become a diversified upstream company. Israeli investors were suspicious of the hugely leveraged deal, which saddled the company with yet more debt.

However, the crisis in the oil prices, which started earlier in March when Russia and Saudi Arabia clashed over cutting oil production, created the perfect storm for Delek Group. Its share price has fallen 84% in the last month as the group market cap fell to about NIS 824 ($220mn).

In addition, Delek Group bonds fell precipitously and Israeli analysts and commentators say the group will have to seek debt settlements with its bond holders.

Citi Bank is keen to sell the Delek Drilling shares for $57mn, which implies a value for Delek Drilling of about NIS 1.7bn ($450 mn) while after another 4.23% fall in the participation unit price March 16, Delek Drilling was worth NIS 3.4bn. The buyer is the Dayan family which holds businesses in automotive, hotels and real estate in Israel and in Europe.

In its appeal to the court, Delek Group said that selling the participation units so cheaply would hugely harm the company and its shareholders. It also said that the share price fall is due to force majeure.

Delek Group's partner in the natural gas monopoly in Israel, the American company Noble Energy, is also in trouble, since its main source of revenues is US shale oil. The fall in oil prices will create huge losses for the company and it is unclear how long it will be able to hold on to its Israeli assets. It started the year valued at $22.30/share January 5, but was trading at $5.70/share March 16.