Nofar Energy Halts Israeli IPO Amid Investor Hesitation
Nofar Energy has been forced to withdraw its plan to issue preferred shares on the Tel Aviv Stock Exchange, at least for now, due to a lukewarm response from institutional investors and hedge funds. Concerns were raised about the novelty of the product and its classification as equity rather than debt. Despite this setback in Israel, Nofar Energy's management intends to pursue a similar offering in the United States after completing a dual listing.
Nofar Energy, currently valued at 6.5 billion shekels, had aimed to raise capital without increasing leverage, a common outcome with bond issuances. The proposed preferred shares were designed to offer a cumulative annual dividend starting at 8.5%, increasing over time to 13.5% after 15 years. Each share was to be valued at 100 shekels, with no fixed redemption date, though Nofar could redeem them after five years.
Discussions with institutional investors revealed that investment managers would classify these preferred shares as equity, leading them to prefer purchasing the company's common stock for potential upside. Hedge funds expressed concerns that Israel's market is not yet mature enough for such a product, questioning the exchange's ability to provide automated index calculations and yield tracking. The draft prospectus explicitly classified the preferred shares as equity.
This withdrawal follows a significant capital transaction for Nofar Energy. Meitav Gemel and Pension invested approximately 200 million shekels in Nofar Israel, the company's Israeli subsidiary, valuing it at about 2.3 billion shekels post-investment. This transaction granted Meitav 18.7% of the allocated shares, leaving Nofar Energy with a 69.8% stake in Nofar Israel.
Preferred shares are hybrid securities combining features of stocks and bonds. They offer holders priority for fixed dividends and sometimes liquidation but typically lack voting rights and participation in profits beyond the predetermined dividend. Their classification as equity means fundraising through them does not increase a company's leverage like a bond issuance.
