Israel Electric Corporation (IEC) is considering increasing its loans from Israeli banks after the failure of the latest bond issue. The company is negotiating with Bank Leumi (TASE: LUMI) for a loan amounting to hundreds of millions of shekels to finance activity through the end of the year. IEC is also in talks with Merrill Lynch & Co. Inc. (NYSE:MER).
Bank Leumi is reviewing the request. Banking sources think that the loan application has little chance of approval in view of the uncertainty whether the IEC structural reform will be implemented.
In discussions with IEC and the Government Companies Authority, Bank Leumi demanded that the loan go only to IEC, and that it would not later be transferred to subsidiaries as part of the company’s structural reform. This is an unexpected development, because IEC’s policy for many years has been to reserve the option to raise capital from Israeli banks as a last resort because IEC faces single borrower restrictions.
IEC is suffering from a cash flow shortage, and needs to raise NIS 800 million by year-end to finance current operations and investments in the electricity sector. The company’s financial difficulties have rendered it unable to finance the planned retirement of 300 long-time employees as part of a streamlining plan.
Top IEC executives have lately been expressing concern about the company’s financial situation. At internal meetings, they have suggested a stock offering on the Tel Aviv Stock Exchange (TASE) as an alternative to a debt issue.
IEC said in response, “The company needs NIS 1 billion a year for the development of Israel’s electricity sector.”
Published by Globes [online], Israel business news - www.globes.co.il - on September 18, 2007
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