On the way to removing a live business comment? Midroog is back to rating the fuel group

by time news

Midroog returned to survey the group fuel , With a rating of local Baa3, after it stopped surveying Yitzhak Tshuva’s holding company in April 2020. According to Midroog’s rating scale, this rating is equivalent to S&P Maalot’s BBB minus rating and is an improvement of 10 ranks compared to the last rating given to the group before About a year and a half.

The BBB minus rating (which is an “investment rating”) is a goal that Delek Group is required to achieve today, in order to remove the live business comment from its financial statements. By achieving such a rating by March 2022, Delek Group will present compliance with the financial criteria it has committed to its bondholders, thus preventing them from being able to make the entire debt to them immediately repayable – the main reason for the current existence of the live business note in the company reports.

However, S&P Maalot still gives the Delek Group a lower rating of local B. Thus, in order to safely remove the risk of the full repayment of the debt immediately, the Delek Group is required to receive a rating of at least BBB minus from S&P Maalot. This is because according to the agreement between the company and the bondholders, in the case of two debt ratings, both must be in the minimum rating or above it.

Alternatively, Delek Group can terminate the contract with S&P Maalot, leaving only Midroog’s rating on the table. In such a case, Midroog’s rating will become the determining rating and will in all probability lead to the removal of the live business note from Delek Group’s financial statements.

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Delek has previously terminated a contract with Midroog

Such a case occurred to Midroog in April 2020, when its decision Reducing the group’s debt rating by 14 notches, led the Fuel to end the contract with her. This was after Midroog estimated that Delek Group was likely to default on a high level of certainty, and therefore gave it a local Ca rating, which is only one notch above the minimum and reflects the weakest debt repayment capacity.

Midroog then explained that the expectation “rests on our assessment of a material deterioration in the level of liquidity and financial flexibility of the company with the outbreak of a severe global economic and financial crisis in recent weeks following the outbreak of the corona virus epidemic.”

Since then, Delek Group’s financial position has improved significantly thanks to capital raising, asset realizations, success in debt recovery to finance the Whale Reservoir (held by Delek Drilling), and a sharp rise in Brent crude oil prices, which have allowed it to substantially reduce its financial debt. The rating now indicates that the Delek Group’s net financial debt decreased from NIS 5.8 billion at the end of 2019 to NIS 4.1 billion at the end of June 2022.

The group’s market value stands at NIS 5.2 billion after a 360% rise in the stock from the low of March 2020 (however, it is still about 50% lower than where the stock was traded at the beginning of last year, before the outbreak of the corona crisis).

According to Midroog, in view of the decrease in financial debt and the recovery in the value of the investee companies, the group recorded a decrease in the level of leverage LTV (debt in relation to asset value) from over 100% to only 50%, depending on the value of its subsidiary .

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However, the company’s leverage ratio as a measure of its financial flexibility and ability to refinance its liabilities over time, is subject to volatility in the value of holdings, exposed among other things to the international oil price, which is affected by many exogenous factors and volatility in capital markets. This is an inherent risk factor in the financing structure of the company as a holding company, which has a negative effect on credit risk. “

“Limited and weak access to funding sources”

Midroog estimates that the potential current dividend receipts (excluding exceptional dividends) of the Delek Group from its subsidiaries are in the range of NIS 300-400 million per year. According to her, this is a reasonable ability to cover financing expenses on the basis of dividends, but to accumulate cash only at a slow pace.

However, Midroog estimates that “the company’s financial flexibility remains weak given that most of the company’s assets are encumbered for the benefit of the financiers or there are restrictions on liens, so access to funding sources is limited and weak. “Execute business and financing moves that are exposed to exogenous effects, such as conditions in the capital markets, oil prices and more.”

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