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Reports in the Israeli newspaper, Globes, yesterday indicated that Israel Corp may be having discussions to sell its 21.1% stake in Peru’s largest private power producer Edegel SAA. Edegel is listed on the Lima stock exchange and the Israel Corp stake is currently valued there at about US$430 million
Israel Corp is reportedly asking US$500 million for the investment, which is held by its international power producing subsidiary IC Power Ltd.. There is no independent third party confirmation of this story yet however and Israel Corp itself in a statement has only said: “The company, as a holding company, from time to time examines the sale of mature assets as part of its business.” In the language of investor relations-speak that is probably about as close to a “yes” as you can get.
In any case the report does make some sense. Earlier this month Israel Corp was also reported to be considering bids for its newly completed, 80% held, natural gas fired 440 megawatt power plant in Israel Mishor Rotem.
These are both significant assets, and for Israel Corp potential substantial sources of liquidity as it seeks now to recast its balance sheet a little. The failure of Better Place, the complete disintegration of ZIM in an era of low shipping rates but ever-larger commitments to new generations of container vessels, and continuing struggles at its refining subsidiary Oil Refineries Ltd has been forcing Israel Corp to take stock of itself.
In a world where refining and marketing remains a cut throat business, caught in the middle between production and the end-users, Oil Refineries Ltd. has remained a tough business even with the recent completion of the rebuilding of their cracking facility at more favourable economics. In this business temptation to speculate on the value of product stocks in the system, by playing with leads and lags, can be considerable. One can also be punished by market fluctuations even when not doing speculating if your competitor has acted otherwise and ended up on the right side of the movement gaining temporary market share in the process, as all hedges are relative.
Israel Corp’s car building joint venture with Chinese producer Chery, Qoros, seems to be up and running now, but will have its work cut out for them in marketing its output in a world awash in excess car production capacity. Low Chinese costs of production will help Qoros overcome this, but it is a long-range plan more likely to absorb capital than release it for quite some time yet.
Finally, yesterday Israel Corp announced another expensive development joint venture in China, this time with Chinese energy company Taiqing, for Israel Corp subsidiary Heliofocus Ltd to build a 200-megawatt solar boosting system for coal-fired power stations in Inner Mongolia for $340 million. Financing terms have not been disclosed, but securing of long term financing may have been obtained reducing, though not eliminating, the need for substantial equity inputs by the partners.
This project is scheduled to begin in 2015 using advanced new Israeli technology to generate electricity by heating air, instead of current water or oil-based devices. A receiver located at the focal point of large parabolic dishes reflects the sun’s rays onto it. The radiation is then converted into hot air which can then drive a turbine. Such systems use less land than current thermo-solar methods.
Hitherto Israel Corp’s 52.3% controlled subsidiary, Israel Chemicals, has picked up the slack for all of these projects and paid the bills, but even there recent weakness in Potash prices due to games played by Russian cartels have done them no favours.
So all in all raising some cash by selling off a couple of power plants looks like a very good idea. Further along all of the development subsidiaries may be spun off too, leaving Israel Corp with just Israel Chemicals and Oil Refineries Ltd. Of course it is much easier to break eggs than to unscramble an omelet once it has been cooked, so such a plan is likely to take some time to mature.
Israel Corp has long seemed over-complex when you examine its statements, its subsidiaries, its footnotes and its business segments. Anything that brings more simplicity to the table is certainly to be welcomed, as unneeded complexity can end up confusing insiders just as much as outsiders at the end of the day. When that happens trouble can come in even through the front door.