Israel Electric Corporation (IEC) (TASE: ELEC.B22) is struggling to raise NIS 2 billion, and its board of directors yesterday postponed approving the measure indefinitely. The utility, whose debt already totals NIS 62 billion, has been trying to issue a new bond for the past two weeks.
Sources at investment institutions told "Globes" that they are worried about their exposure to IEC and expressed reservations about its planned debt offering.
On October 6, IEC's board of directors instructed management to raise NIS 2 billion in a debt offering or from bank loans. The approval is unusual, and was given to ease the utility's serious cash flow distress, caused by the need to buy more expensive diesel due to disruptions in natural gas deliveries from Egypt.
IEC planned to raise the money by expanding its NIS 1.5 billion Series 22 bond, which is traded on the TASE. On October 30, the bondholders met to approve the expansion, but did not vote on it because there was no legal quorum.
The bondholders are worried about the effect of the expansion on the bond's price. It is the only IEC bond now traded on the TASE, and its current price reflects a yield of 3.3%.
The sources added that IEC is in talks with Bank Hapoalim (TASE: POLI) on an emergency loan if it cannot raise the debt on the TASE. The amount of the loan and its terms will only be set after the situation about the bond issue is clarified.
A top executive at one of the large institutions that owns IEC bonds told "Globes" that the "moment of truth is approaching" on IEC's debt. "The amount is too big, the company is finding it increasingly difficult to recycle its debt. Already, there is no real demand, and the government will have to decide what to do. I fear that it will wait for a crisis, and only then decided how to solve IEC's debt problem."
Most of IEC debt is in bonds, most of which are held by Israeli financial institutions, which for years treated the bonds as effectively guaranteed by the government (IEC is a wholly owned government company). IEC's debt totaled NIS 62 billion at the end of June, including NIS 51 billion owed to public and private bondholders, NIS 7 billion owed to Israeli banks, and NIS 4 billion owed to foreign banks. IEC functions by recycling this debt.
IEC said in response, "IEC constantly reviews various options for raising debt to develop and operate the electricity market and meet its obligations. The company chooses at its discretion the most suitable financing method."
Published by Globes [online], Israel business news - www.globes-online.com - on November 9, 2011
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