2024-01-25 06:11:18
The infrastructure investment fund Generation Capital is currently working on restructuring its portfolio, so that it will fully own the green energy company Solgreen and the conventional energy company Rafak Energy. This, through the wholly owned subsidiary Powergen.
For the shares of Rafek Energy, which it is purchasing from Rafek Communications and Infrastructure, which is controlled by Tanhum Oren, Generation Capital will pay NIS 370 million plus an additional NIS 12.5 million for the purpose of repaying Rafek Communications and Infrastructure’s share of the owner’s loan provided to Rafek Energy. Already in 2018, Generation purchased 50% of Rabak Energy from Rabak Communications and Infrastructure, according to a company value of NIS 140 million.
The current purchase, which will be completed by the end of the first quarter of this year, will be financed by Generation Capital, which is managed by Chairman Yossi Singer and CEO Erez Belsha, through the issuance of preferred shares to the Phoenix Group in Powergen for NIS 250 million. Preferred shares are shares that give priority to their owners when it comes to the distribution of dividends, and carry certain characteristics of a loan. The priority shares that Generation Capital will issue to Phoenix in Powergen will bear an annual interest of 8% in line with the index.
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Rafek Energy owns, alone or together with partners, eight power generation facilities at six sites in Israel. The aggregate production capacity of these facilities is 1.3 gigawatts. Refak Energy owns the Alon Tabor power plant, which has a production capacity of 74 megawatts, as well as the Ramat Gabriel power plant, which has the same production capacity.
It also owns a station in Shork, near Rasheltz, which has a production capacity of 140 megawatts; a station in Ashkelon, which has a production capacity of 87 megawatts; and in Alon Tabor MRC, which has a production capacity of 583 megawatts. The latter station was purchased by Rafek Energy together with with a Chinese company and Shamir Insurer controlled by Meir Shamir from the Electric Company for NIS 1.9 billion in 2019. Also, Refak Energy is a partner in a project to build a power plant in the South Sharon Regional Council.
Solgreen deals in the field of renewable energy. As of the end of the third quarter of 2023, it has facilities connected to electricity with a production capacity of 120 megawatts. Generation Capital owns 78.6% of the company’s shares and this week submitted a tender offer to purchase the shares it does not own. The fund offers offers to pay NIS 7 per share and a total of NIS 87.6 million. This is a price similar to the share price on the stock exchange, which is NIS 7.1. If the purchase offer is accepted, Solgreen will cease to be a traded company, but will continue to be a reporting company, because it has traded bond series.
Following the submission of the purchase offer, Solgreen Chairman Eldad Persher announced his resignation. Persher, the former CEO of Bank Mizrahi Tefahot, was appointed to the position in July 2022. When appointed to the position, Persher received a package of options with an economic value of NIS 2.5 million. The first batch of options matured last August, but the options are deeply out of the money. The exercise price was set at NIS 16.66, not far from the price when they were granted (NIS 16.06), but very far from their current price.
The investment in Solgreen, which began in mid-2018, did not bring satisfaction to Generation Capital. The fund’s total investment in the company’s shares has so far amounted to NIS 562.1 million, while today the value of the holdings is NIS 325 million. That is, a loss of NIS 237 million, or a loss of 42%. Throughout 2021 Solgreen was traded at a value of over one billion shekels, but today its value is only 410 million shekels, and in the past it was half of that.
Generation wants to unify its energy activities under a private company, while holding 100%, in order to have the necessary time, for its view, to improve the assets, to create synergy between them and to complete the necessary investments in the companies for the purpose of maturing the assets, without being diluted within the framework of equity raising in the market, which these days suffers from significant volatility. In the future, when the market conditions are better, the intention is to issue Powergen on the stock exchange. Generation Capital aims to make Powergen one of the largest energy companies in the country.
For the purpose of the two transactions, Generation needs NIS 458 million, while as of the end of the third quarter it has NIS 145.3 million in its coffers. Its net financial debt is NIS 1.55 billion.
The deal with Generation Capital is similar in many ways to another deal in the energy field that Phoenix recently made. In October, Phoenix signed a deal with the energy company Mashek Energy, in which the latter will issue Phoenix preferred shares in its subsidiary, through which it owns 50% of the shares of the Dalia Energy power plant. The first shares will be issued against an investment of NIS 250-700 million on the part of Phoenix.
The money will be used by Dalia Energy to complete the purchase of the Eshkol power plant from the state for NIS 9 billion. These two transactions illustrate the gaps between the investors and the energy companies when it comes to valuation. These disparities are caused, among other things, by the high interest rate and volatility in the markets. Issuing preferred shares is to a large extent a way to deal with these gaps and bridge them, without the need to make a definitive decision regarding the value of the company.
Generation Capital was established in 2018 and a year later was listed on the Tel Aviv Stock Exchange. Together with another stock exchange infrastructure fund, Keystone, it became a symbol of the collection of high management fees by fund managers, regardless of performance. This is because these funds charge management fees according to the value of the assets managed, and not according to the stock yield or financial results. To date, Generation Capital has invested NIS 2.3 billion in 9 companies.
The fund itself is traded at a value of NIS 750 million, and its equity, as of the end of the third quarter, stands at NIS 2.05 billion. In December, Generation announced a change in the management fee mechanism, in such a way that it would detach it from the value of the assets and attach it to the performance of the stock, which would significantly reduce the scope of the management fee, from approximately 40 million shekels per year to up to 26 million shekels per year. The change came under pressure from the institutions that hold the fund’s shares.
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