Page 9 - MEOG Week 18

MEOG FInanCe & InVestment MEOG
Israel’s Delek hit with ‘going concern’ warning
IsraeL
DElEK Group ltd., Israel’s largest energy company, received an auditors’ warning about its ability to repay debt as it scrambles to pla- cate creditors in the wake of the coronavirus pandemic.
The questions about Delek’s ability to con- tinue as a “going concern” were included in the company’s fourth-quarter earnings report on Sunday. Delek, controlled by investor Yitzhak Tshuva, estimates it will reach a deal on the terms of its credit, and, according to a company state- ment, plans to raise 400 million shekels ($114 million) this year to shore up its finances.
It has already carried out asset sales of more than 450 million shekels that were used to pay back loans, and decided to cut capital expendi- tures for 2020 in half to $125 million.
Banks and bondholders have been pressuring Delek for repayment of its debt after company shares started tanking in early March, just as the coronavirus spread to most of the world. Delek is on the hook for 2.8 billion shekels of debt this year, according to data compiled by Bloomberg.
In 2019, most of the revenue of Delek Drill- ing, the operating branch of Delek Group in Israel, came from the sale of gas from the Tamar reservoir. In addition, in 2019, the development of the leviathan reservoir was completed. On December 31, 2019, natural gas started to flow from the leviathan reservoir to the local mar- ket, on January 1, 2020, the flow of natural gas to Jordan commenced and on January 15, the flow of natural gas to Egypt commenced under the supply agreement with Dolphinus.
Delek joins a host of energy firms facing a shaky future with demand for oil shrinking by 30% to 40% this year since prices for the com- modity tumbled. Delek shares have dropped 70% this year.
At the same time a key US official said Israel is among the countries that need better screening of foreign investment to guard against having their companies turn toward China during the economic downturn sparked by the coronavirus pandemic.
“One of the preliminary takeaways from this crisis is that we have to be more cautious in our dealings with China,” US Assistant Secretary of State for Near Eastern Affairs David Schenker said in a phone interview. “There are firms out there that are desperate for capital and could become targets for predatory investment.”
The rhetoric is heating up again between the world’s two biggest economies, with President Donald Trump escalating efforts to pin blame on China for unleashing the coronavirus pan- demic and exploring ways to hold it accountable.
Tensions are also playing out elsewhere, with the European Union ushering in the first con- tinent-wide rules for screening takeovers on security grounds.
Chinese companies backed by the govern- ment’s financial muscle are already hunting for bargains in Europe, prompting EU countries to increase their powers to veto investment from outside the bloc. Canada is also among countries stepping up scrutiny of foreign investment amid the crisis.
“We’ve taken steps,” Schenker said. “Some of our partner nations have taken steps to bolster investment-screening efforts of late but Israel could also be well advised to add some of these mechanisms as well.”
not enough
After coming under pressure from the US to bet- ter scrutinize potential investment from China, Israel last October said it would form a new advi- sory panel to vet the national security aspects of foreign investment. Schenker said Israel’s new process still falls short because it doesn’t cover the field of high technology and is voluntary. “It’s necessary but I think they can do a whole lot bet- ter and I think they should,” he said.
Others have also raised concerns over the new Israeli body, which was established when an interim government was in charge. A Rand Corp. report published this year said “the com- mittee will likely have legal and structural chal- lenges” and “might not fundamentally change the regulation environment.”
China is a key economic partner for Israel. It plays a major role in local infrastructure projects and is the country’s second-largest commer- cial partner with $11.8 billion in annual trade between the two sides.
But its role in the Israeli economy has come under pressure during Trump’s administration, with US officials urging Israel to rethink China’s reach. America is Israel’s top strategic ally, and the US has said intelligence sharing and other forms of cooperation could be at stake.™
Week 18 06•May•2020 w w w . N E W S B A S E . c o m P9