Israel Land Development Company - Energy Ltd., a partner in the Myra and Sarah offshore gas exploration licenses, will hold its IPO on the Tel Aviv Stock Exchange (TASE) today at a value of NIS 830 million. Israel Land Energy bought the licenses a few months ago for several tens of millions of shekels.
ILDC Energy is a subsidiary of Israel Land Development Company (TASE: ILDC), the real estate and media company controlled by chairman Ofer Nimrodi. Israel Land's share price has risen 150% so far this year, partly because of the acquisition of stakes in the two licenses, giving a company value of NIS 1.08 billion, about 25% more than the company value for Israel Land Energy's IPO.
On Tuesday, Israel Land Energy cut the price of the offering by 17%, and the minimum gross proceeds that the company hopes to raise is NIS 107.8 million. The reduction of the offering price lowers the Myra and Sara licenses - in which Israel Land Energy owns 46.3% - from NIS 2.15 billion to NIS 1.8 billion.
The pricing of Israel Land Energy was derived from the market enthusiasm for Israeli offshore gas and oil exploration, especially the Tamar and Leviathan fields, as well as from the results of the 2D 3D seismic survey of the Myra and Sara licenses commissioned by Israel Petroleum Company, which found potential of six trillion cubic feet of natural gas, worth billions of dollars.
Nine underwriters are handling Israel Land Energy's IPO. Poalim IBI Underwriting and Investments Ltd. (TASE:PIU), Clal Finance Underwriting Ltd., and Discount Underwiting & Issuing Ltd. are the lead underwriters. Clal Finance Underwriting is controlled by chairman Tzahi Sultan, who controls Modiin Energy LP (TASE:MDIN.L), one of Israel Land Energy's partners in the Myra and Sara licenses.
One of Israel Land Energy's requirements was for the underwriters to provide commitments to buy all, or at least some of the unpurchased shares in the IPO, in order to guarantee the IPO's success and the company's listing on the TASE.
The underwriters were not pleased with such a commitment, as it could leave them shackling a large part of their equity in Israel Land Energy shares purchased in the IPO; shares that they would then find difficult to sell in regular trading, resulting in a sale at a loss.
After lengthy negotiations, the parties struck a deal on the following mechanism. The underwriters will commit to 50% of the offering, amounting to NIS 50 million, and Israel Land Energy will pay an underwriters and management fee of 5.5% of the offering, as well NIS 7 million in distribution fees.
For the underwriters, since they will have to distribute only half of the offering, shared by many underwriters, the risk is reduced. For Israel Land Energy, while the underwriters' fees are fairly high, they are still reasonable (paying too high a fee could arouse investors' suspicions). Regardless of the deal, Leader Capital Markets Ltd. (TASE:LDRC), which advised Israel Land Energy on the offering, decided not to participate in it, and quit the underwriters' consortium.
Israel Land Development's share price rose 3.2% in morning trading to NIS 39.71.
Published by Globes [online], Israel business news - www.globes-online.com - on November 25, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010