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    Israeli Delek's Public Offering Poses Risk


Delek Group is planning to complete the initial public offering in Tamar Petroleum by selling up to $550mn in shares, as it offloads its sole gas producing asse

by: Ya'acov Zalel

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Israeli Delek's Public Offering Poses Risk

In the coming week, Delek Group is planning to complete the initial public offering in Tamar Petroleum by selling up to $550mn in shares, as it offloads its sole gas producing asset. Tamar Petroleum is a special purpose vehicle set up so that Delek Group can comply with the Regulatory Natural Gas Framework, which was adopted by the Israeli government last year.

At the time, only environmental protection minister Avi Gabbay opposed the Framework's adoption. He resigned from the government over other matters, but remained adamant in his opposition to the Framework and said that price control rather than divestment was the solution to the monopoly.

"To the best of my understanding, there has not been and will not be competition in natural gas [sector] in a small country like Israel," Gabbay told daily Yedioth Ahronot. "So, I suggested leaving the regulation and focusing on one thing: controlling the price of natural gas to Israeli buyers.

Gabbay returned to the fore last week, becoming unofficially, the leader of the opposition, following his win in the primaries for the Labor party leadership, the main opposition party. 'Unofficial' because Gabbay is not a member of the parliament) so he cannot carry this title. However, he will be the Labor's candidate for the premiership in the next election expected no later than 2019.

Netanyahu's travails

On the day Gabbay was chosen as the Labor leader, the prime minister, Benjamin Netanyahu had one of his worst days in office, as a few of his most trusted allies and associates were summoned to testify as suspects in various corruption cases and later were arrested. Those events have the potential to force early elections and Gabbay is poised to become an important figure in Israeli politics. If he insists on imposing price controls, the value of Tamar Petroleum's shares would tumble.

An analyst, who preferred to remain anonymous said that "if the government changes, the risk in the gas sector will rise. "I see the Natural Gas Framework and other agreements that were signed as a done deal. However, if the policy changes our recommendations would change as well," he said.

Tamar's Two Achilles' heels

The risks to Tamar Petroleum were highlighted by HSBC Bank, whose analysts pointed to two weaknesses: the first one is the concentration of Tamar Petroleum's activity and the second one the policy of the Israeli government.

"We are paying attention to a very high level of concentration in Tamar Petroleum, which relates to cash flows flowing from one source, from one market, from one operator to one geographical and political region exposed to one currency and one regulation," the bank's analysts wrote, according to a report on Calcalist, a business website.

"The Israeli gas sector is almost closed in regulatory terms, but the Israeli government may exercise such discretion to change Israel's gas policy," it said in another paragraph, a possibility which became closer to reality following Gabbay's win in the Labor elections and Netanyahu's deteriorating stature.

Nevertheless, HSBC valued Tamar Partnership at $12.06bn just 2% lower than the valuation last year when Noble Energy sold a 3.5% stake in Tamar Partnership to Harel Group, a leading Israeli insurance group. HSBC, with JP Morgan, are handling the IPO's public offering in the international markets.


Ya'acov Zalel