/By Irit Avissar and Ron Stein/
Drip irrigation technology company Netafim Ltd. is in advanced negotiations for a $190-200 million deal to supply pumping and underground drip irrigation systems for sugar cane to an Ethiopian government company. A consortium of Israel financial institutions, headed by Bank Hapoalim (TASE: POLI), is providing financing for the Ethiopian company.
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The project is complex, and its terms, including the financing question, have not yet been finally closed. Netafim, managed by CEO Ran Meidan, is carrying out the work in Ethiopia in cooperation with Global Africa Industries, owned and managed by Itai Terner. In addition to the complex deal itself, one of the interesting things about it concerns the question of financing. The bank’s customer is Netafim, but the party receiving credit from the bank is an Ethiopian company controlled by the Ethiopian local government, with the money being paid to Netafim as payment for the project. The finance transaction is a complicated scheme called buyer credit, in which the bank is actually financing the company receiving services from its customer. Credit granted to an Ethiopian company, however, is considered high-risk credit, because it involves a company operating in a country defined as an emerging market, and which does not have large foreign currency reserves. This loan is therefore designed to be secured through a credit insurance company. The parties have apparently not yet settled the question of the insurance, and it has not yet been determined whether the party providing it will be the government credit insurance company or a foreign credit insurance company.
The advantage of the deal for Bank Hapoalim is that the risk is being transferred to the credit insurance company (these companies have high debt and financial strength ratings), which means that Bank Hapoalim’s risk is determined by the credit risk of the insurance company insuring the loan, which is low, rather than by the Ethiopian company’s risk.
Quite a big deal
The negotiations for putting together a financing package have reached an advanced stage, although they have not yet been finally approved. The deal is a rather large one, and the bank is therefore expected to recruit other financial institutions to take part in it, apparently mainly foreign institutions specializing in this type of transactions. Bank Hapoalim is also providing credit to Netafim directly through a consortium that includes Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), Harel Insurance Investments and Financial Services Ltd. (TASE: HARL), Amitim (the older pension funds for which an arrangement has been made), Mizrahi Tefahot Bank (TASE:MZTF), Israel Discount Bank (TASE: DSCT), Union Bank of Israel (TASE: UNON), and HSBC. Some of these institutions may also participate in financing this contract.
Netafim, controlled by the Permira private equity fund, uses drip irrigation that saves water and reduces erosion and soil exhaustion. Netafim exports $800 million annually. The company has 16 plants in 11 countries, and 13 of its plants are outside of Israel. The company has 4, 000 employees.
Published by Globes [online], Israel business news – www.globes-online.com