August 20, 2019

Generation

ג'נריישן

Calcalist – 08/20/19

One Month After They PurchasedSupergas

The Salkind Brothers Are Holding Negotiations for Selling theGas Distribution Activity to Generation

Electra is holdingnegotiations with the infrastructure and energy fund, managed by Erez Balasha andYossi Singer, for the sale of its stake (33%) in a cluster of companies thatwon Israel’s tender for gas transmission in the south.  The price: 120 million NIS.  The deal couldbe signed in the coming days    

-Exclusive to Calcalist -

Golan Hazani

Less than one month after signingthe acquisition of Supergas from Azrieli for NIS 770 million, the Salkindbrothers are conducting negotiations to sell the gas business of Electra – asubsidiary of Elco Holdings under their control - to Generation Capital, an infrastructurefund, managed by Yossi Singer and Erez Balasha.

The scope of the transaction isapproximately NIS 120 million, according to Calcalist.  The deal could be signed in the coming days.

As part of the transaction, Generationwill acquire Electra's stake (33.3%) in three companies: Darom Natural Gas,which operates in the gas distribution sector in the areas of Ashdod and theterritories  surrounding the Gaza strip;Negev Gas, which operates in the gas distribution sector in the Negev; and athird natural gas operating company which operates the two gas distributioncompanies.

The remaining shares of thecompanies are held by Amisragas (33.3%) and Aaron Hamo (33.3%), who owns a gasinfrastructure company.  The sum for whichElectra will sell its stake reflects NIS 360 million in gas distributionactivities.

The Gas Distribution Activities

In 2008, the state published twolarge, high-pressure natural gas distribution tenders for three categories of end-consumers,according to potential consumption scope: large industrial clients,medium-sized clients and small consumers. The tenders included the operation ofa 25-year distribution system.

The competition in the tender wasfor the one-off connection price to be charged from large consumers and for thepricing of gas transmission costs to all consumers (distribution fees).

Amisragas, Electra and Hamo wontwo tenders in 2009-2010. The expected revenue for the first five years was NIS200 million. The project includes the establishment of the infrastructure, theconnection to the transmission network established by the state-owned IsraelNatural Gas Lines company, and the outlets from the transmission network to theend customers. According to the company, the projects are in the constructionand operation stages. The cost of construction is approximately NIS 276million, with Electra's share being one-third. The operating cost is approximatelyNIS 100 million.

Last June, Electra sold Netanya'ssewage treatment plant to Dan, in a similar transaction for NIS 102 million. Atthe end, Dan decided not to buy two smaller facilities – in Dimona and Arad -for an additional NIS 28 million. The transaction stipulates that Electra willcontinue to serve as the facility's operating contractor, and the franchise willbe in effect until 2026.

These two deals draw a strategicline whereby Electra enters projects at the development stage, takes care ofthe financing, builds the projects and provides operational and maintenanceservices up to the sale, allowing it to channel funds for new activities.

Electra’s CEO Itamar Deutschersaid at the time of the sale to Dan that "with the transition to theoperational stage, the company is exercising its holdings to redirect resourcesto other projects." It is evident that this strategy is also beingimplemented in the gas distribution project.

The Investments of Generation

Generation Capital wasestablished in 2018 and went public in June 2018 at a value of NIS 277 million,making it the first tradable infrastructure and energy fund in Israel.

The fund currently operates inthree sectors: the public transport sector, through a 49% stake in Bon Tour,which also owns the Metropolitan Bus Lines company, which it purchased in July2018 for NIS 100 million; the renewable energy sector through control (70%) ofthe green energy company Solgreen. At the beginning of the month, and after a competitionprocess, Generation Capital acquired the stake of Lahav LR, controlled by EliLahav, in the company (35%) for NIS 44.4 million, thus becoming the solecontrolling shareholder; and the power plants sector by means of a 50% holdingin Rapac Energy – a holding purchased for NIS 70 million in September 2018.Last month, the company (31%) together with the Chinese governmental company ChinaHarbour (34.5%) and Meir Shamir (34.5%) completed the purchase of the AlonTavor power plant from the Israel Electric Company for NIS 1.9 billion.

Electra and Generation Capitaldid not comment.

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