Israel Chemicals (TASE: ICL: NYSE: ICL) has concluded the institutional phase of a massive bond offering. The company was besieged with demand for its bond by institutional investors as itcurrently has no marketable bonds listed in Israel.
The company received enormous demand, amounting to NIS 3.5 billion,and sodecided to expandits offering from NIS 1.25 billion to NIS 1.7 billion. The interest set in the tender was 2.45%, reflecting a yield of 2.58%, and representinga spread of 1.33% over the comparable government bond.
The industrial company, controlled by Israel Corporation (TASE: ILCO), has a market cap of NIS 21 billion on the Tel Aviv Stock Exchange. The bonds issued on Monday were rated AA with a stable outlook. The company ended 2015 with revenue of $5.4 billion and a net profit of $509 million. Its net cash flow totaled $573 million.
Excluding Altshuler Shaham which is likely exposed to the company’s US dollar bonds all institutional investors participated in Wednesday’s offering.
Recently, reports suggested tension building between Idan Ofer and Israel Chemicals CEO Stefan Borgas over dividends the company was to distribute. While Borgas wants to keep the dividends or at least reduce their volume to invest in the company’s operations, Ofer is interested in paying out large dividends.There has been specualtion thatif Borgas sticks to his opposition, then Ofer might work to replace him.
During the road show, the institutional investors asked for information on the dividend policy at the center of the disagreement between Borgas and Ofer. The company did not provide a detailed response but the matter did not affect the bond offering.
According to theterms of the bond issuance, Israel Chemicals agrees to avoid providing any assets as collateral until it pays its Series E (the new series) unless it receives the approval of the trustee and the bondholders in a special decision under future terms.
The condition made the bonds added to the allure of the bonds for investors because the company’s cash flow, combined with a reduced dividend policy and a ban on further collateralization, meansa high probability that it will be able to meetits obligations.
Israel Chemicals also committed to maintaining shareholders' equity of $1.55 billion and a quarterly net debtto EBITDA ratio no higher thanthan 1:5.5. If the company’s rating falls, it will compensate the bondholders by increasing the interest rate.
Published by Globes [online], Israel business news - www.globes-online.com - on April 5, 2016
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