Israel Corp to control Oil Refineries alone

Security problems are delaying the control permit for the Petrochemical Enterprises-Glencore consortium.

Ofer Brothers subsidiary Israel Corp. (TASE: ILCO) will initially be the sole controlling shareholder in Oil Refineries Ltd. (TASE:ORL), because of the delay in obtaining a control permit by the Israel Petrochemical Enterprises Ltd. (TASE:PTCH)-Glencore International AG consortium. The consortium’s permit is being delayed because of Glencore’s holdings in Arab countries. Glencore is one of the world’s largest traders in oil.

Last month, “Globes” revealed that the Petrochemicals Enterprises-Glencore consortium would have problems in obtaining a control permit for Oil Refineries because of security checks and a review by the Antitrust Authority.

Israel Corp. said that it would file a separate application with the Ministry of Finance and Prime Minister’s Office for a control permit for Oil Refineries. The company will reportedly obtain the permit by the end of May. Israel Corp. was once the state’s partner in Oil Refineries, with a 26% stake in the company.

Israel Corp. and the Petrochemicals Enterprises-Glencore consortium jointly acquired Oil Refineries for $1.57 billion through Petroleum Capital Holdings Ltd. in the privatization of the company in February. Israel Corp. owns 80% of Petroleum Capital and the Petrochemicals Enterprises-Glencore consortium owns 20%.

As a result of the delay in obtaining the control permit, Israel Corp. and Petrochemicals Enterprises decided to amend their MOU. Under the new agreement, Petrochemicals Enterprises will have a two-year option to join the controlling interest in Oil Refineries through May 15, 2009, or 120 days after the company obtains the control permit from the state, whichever comes first. The two companies agreed that Israel Corp. will have first refusal rights to Petrochemicals Enterprises’ stake in Oil Refineries in the event that it sells its shares to a third party. Petrochemicals Enterprises also agreed that Israel Corp. will vote on its behalf in Oil Refineries’ shareholders meetings.

The is not the first time that security issues have delayed or blocked a foreign investor from acquiring control of a large government company. The General Securities Services blocked France Telecom’s (NYSE; Paris:FTE) participation in the privatization tender of Bezeq The Israeli Telecommunication Co. Ltd. (TASE: BEZQ), and Russneft was not allowed to participate in the privatization tender of Oil Refineries.

Glencore was once the Borovich family’s partner in the controlling interest in Granite Hacarmel Investments Ltd. (TASE: GRNT), which owns Sonol Israel Ltd.

Government sources are worried that if Glencore is not granted a control permit for Oil Refineries, this could deter foreign investors from participating in other privatizations of government companies.

In a separate development, Israel Corp. today announced that it was participating in the tender to acquire a company that fully owns power stations in Latin America and in the Caribbean.

Published by Globes [online], Israel business news - www.globes.co.il - on May 13, 2007

© Copyright of Globes Publisher Itonut (1983) Ltd. 2007

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