TheMarker | Capital Market

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Elco reported this morning that it is reviewing the IPO and the Supergas shares to be offered, and stated that it already has submitted a prospectus to the Securities and Exchange Commission ■ Elco wants to raise NIS 200-250 million shekel

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Eran Azran

Only six months since its acquisition from the Azrieli group, the Salkind family, which is the controlling shareholder in Elco, is preparing to issue an IPO of Supergas on the stock exchange. Elco (-1.97% 12910) reported this morning (Wednesday) that it is examining the issuance and the registration of Supergas’ shares on the market (IPO), and has already submitted a prospectus to the Securities and Exchange Commission. Elco wants to issue the offering at a very high demand value of approximately NIS 1 billion - twice the value in the Azrieli deal.

Elco intends to raise NIS 250-200 million through the issuance of shares, intended to develop activities in the sector of electricity and cogenerations. The offering will be made on the basis of the financial statements for the first quarter of 2020. Through the offering, Elco hopes that they will be able to improve Supergas’ financial siuation and receive a high credit rating. Later, Supergas may also issue negotiable bonds on the stock exchange.

Supergas is engaged in the marketing of energy substitutes - such as LPG, natural gas and compressed natural gas - which are used to operate industrial burners, to operate furnaces, to heat institutions, to heat chicken coops in agriculture as well as to be used in household cooking and heating. In addition, during the past year, Supergas started initiating projects to establish cogeneration stations that are fueled by natural gas, to industrial customers (franchised) for the generation of electricity and thermal energy.

Supergas, managed by Kfir Navon, has a sales turnover of approximately NIS 600 million a year, generating an operating profit (EBITDA) of approximately NIS 150 million. It is estimated that Supergas' net profit amounts to approximately NIS 70-80 million.

Supergas supplies gas to 400,000 households and 5,000 business customers. It is estimated that its operations were not affected by the Corona crisis, during which demand for domestic gas probably increased. Elco is working to enhance the synergy between the group's activities in residential construction contracting and Supergas - in a way that will support its sales.

Elco acquired Supergas through a private subsidiary (98.75%) - Supergas Energy (formerly Elco Green Energy). For Supergas, Supergas Energy paid NIS 817 million - a consideration that reflects the company's value at the time (including debt).

Elco paid at the time NIS 567 million in cash, and the balance is to be paid in seven installments, every 12 months. In December, Elco anticipated tis payment of part of the consideration - NIS 109 million - so that the balance of the payment to Azrieli amounts to approximately NIS 125 million.

To finance the deal, Elco put a debt on Supergas - and withdrew a dividend. Closely around the date of completing the transaction, Supergas signed financing agreements with two Israeli banks (one of which is Hapoalim), providing them with a long-term loan of approximately NIS 320 million - in addition to the existing short-term credit line.

In addition, Supergas Energy borrowed approximately NIS 91 million from Leumi Partners and Phoenix (in equal parts). The loan is for a period of 10 years, with an annual interest rate of 0.5%. Phoenix and Leumi received stock options that allow them to purchase up to 20% (half to Leumi and half to Phoenix) of Supergas Energy shares or of Supergas shares for a period of 10 years, at an exercise price equal to the value according to which Elco made its investment.

The granting of options to Phoenix and Leumi Partners embodied an equity value of NIS 450 million for Supergas only. In other words, Elco wants to issue the company at a price that is higher by approximately of NIS 550 million compared to the value of the deal with Azrieli. In Elco's books, the balance of investment in Supergas Energy is registered at a value of NIS 356 million.

The IPO will be executed by a consortium of underwriters led by Epsilon, IBI and Leumi Partners.