Renewable Energy Firm Nofar Faces Regulatory Challenge Over Debt Reporting Amid Expansion
Nofar, a renewable energy company controlled by Ofer Yanai, is currently undergoing rapid expansion and fundraising, which has driven its stock to record highs. However, the company now faces allegations from the Israel Securities Authority (ISA) regarding its interpretation and disclosure of financial liabilities. This dispute could potentially allow bondholders to demand immediate repayment of Nofar's bonds.
Last week, Nofar announced it would convene a meeting of holders of its five bond series, totaling 2.2 billion shekels in debt, to approve its interpretation of financial obligations, which conflicts with the ISA's stance. If bondholders reject Nofar's position, they could trigger immediate bond repayment due to the company failing to meet financial covenants. The core disagreement centers on how "net financial debt" is calculated. Nofar argues that its trust deed permits offsetting both owner financing and senior project debt up to construction cost limits, except when senior debt replaces owner financing. The ISA contends that once senior debt is introduced, owner financing cannot be offset, as additional lenders increase bondholders' repayment risk.
Nofar highlights that other public companies in its sector apply a similar interpretation, contrary to the ISA. The differing views affect Nofar's compliance with financial ratios tied to its bonds, specifically the net financial debt to EBITDA ratio, which must remain below 15 for series A-D and below 18 for series E. Under the ISA's stricter interpretation, Nofar does not meet these thresholds. Credit rating agency Midroog has placed Nofar and its bonds under review with negative implications but noted that if Nofar's interpretation is approved by bondholders, no rating downgrade is expected.
Ofer Yanai, Nofar's founder and CEO, stated that the accounting approach was adopted under previous CEOs and that he supports it after review. The company backs its position with legal and financial opinions from Herzog Fox & Neeman, EY, and MNS. Market expectations suggest institutional bondholders, who also hold shares, will likely approve Nofar's stance. Despite a slight rise in bond yields following Midroog's announcement, Nofar's bonds trade at single-digit yields up to 5.8%, while the stock has declined about 37% since late May but remains up nearly 75% over the past year with a market cap around 7 billion shekels.
Yanai's tenure as CEO has coincided with an aggressive acquisition strategy. Recently, Nofar Israel, a subsidiary, acquired 47.5% of the Reindeer power plant in southern Sharon for 855 million shekels, valuing the plant at 1.8 billion shekels. Concurrently, Nofar signed a memorandum of understanding with Meitav Pension and Provident Funds for a 200 million shekel investment in Nofar Israel. Additionally, Yanai announced plans to increase Nofar's stake in renewable energy firm Alumay Capital from 46% to 75% via a share swap with institutional investors, who will receive Nofar shares in exchange.
This regulatory dispute unfolds amid Nofar's expansion and Yanai's efforts to strengthen the company's market position and ownership in the renewable energy sector.
