Generation Fund Secures Over $270 Million in Debt for Energy Company Acquisition
Translated & summarized from Globes by baba
The Generation Fund is acquiring Shikun & Binui Energy for NIS 4.45 billion, financing part of the deal with over NIS 1 billion in new debt through bond issuance. The acquisition, expected to be completed in 2027 pending regulatory approval, also involves equity from institutional investors and existing company funds. The deal's strategic value lies in acquiring renewable energy assets, which Generation Fund plans to leverage for expansion, particularly in supplying affordable electricity.
The story in 5 lines · by baba
- Generation Fund is acquiring Shikun & Binui Energy for NIS 4.45 billion.
- The fund secured over NIS 1 billion in debt financing through a new bond issuance.
- The acquisition is expected to be completed in 2027, pending regulatory approval.
- The deal's value lies in acquiring renewable energy assets for expansion.
- Institutional investors are contributing NIS 1.2 billion to the merged entity.
The Generation Fund has finalized a deal to acquire Shikun & Binui Energy from its parent company, Shikun & Binui, for NIS 4.45 billion. To finance this acquisition, Generation Fund is taking on new debt amounting to NIS 1.16 billion. The remaining funds will come from equity offerings, prior sales by the fund, and contributions from institutional investors in the merged company. Generation Fund anticipates completing the transaction in 2027, pending regulatory approval from the Electricity Authority.
To fund the purchase, Generation Fund issued a new series of bonds (Series E) sold to institutional investors. These bonds carry a 3.48% interest rate, which is relatively low for corporate debt, but are indexed to the consumer price index until 2039, meaning the effective interest rate could rise significantly over time. Interest payments are scheduled to begin annually in December 2027, with principal repayment starting in 2030 through ten annual installments ending in 2039. S&P Maalot rated the bond series A+ with a stable outlook, and IBI Underwriting led the issuance.
Additional funding sources include approximately NIS 1 billion raised from institutional investors in June, exceeding the initial target of NIS 800 million. Another NIS 1 billion will come from the company's cash reserves, including about NIS 500 million from the sale of its 10% stake in the British rail company Porterbrook in March. Furthermore, NIS 1.2 billion will be injected by institutional investors into the merged entity of Power Generation (Generation's energy arm) and Shikun & Binui Energy, valued at approximately NIS 7.7 billion. Migdal, Harel, and Phoenix are among the institutional investors joining the merged company.
Despite securing financing, Generation Fund awaits approval from the Electricity Authority, which regulates Israel's electricity sector. The authority is concerned about market concentration and may require Power Generation to divest some of its assets. One potential divestment involves an exchange deal with Rapac, where Power Generation would transfer its 16.67% stake in the Alon Tavor power station to Rapac in exchange for Rapac's 24.99% stake in the yet-to-be-built Reindir power station. An alternative, if necessary, could be an arrangement with Nofar Energy for joint control of the Reindir station.
The primary value Generation Fund expects from acquiring Shikun & Binui Energy lies in its renewable energy assets. Currently, only renewable energy sources can sell electricity at discounted rates to private suppliers. This aligns with Generation Fund's significant holding in Bezeqgen, Israel's largest private household electricity supplier, potentially enabling substantial expansion during a period of insufficient affordable electricity supply.
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