July 1, 2020

Pressing the Fundraising Gas Pedal: After the Stock Issuance, Supergas Will Raise NIS 220 Million in Bonds

The bond received a conditional initial rating of A1 with a stable outlook, estimating that Supergas has a "strong business standing and significant market shares in the company's operating segments, alongside relatively low revenue volume relative to its ranking"

By Aviv Levy

Less than two weeks after the energy company Supergas completed a raising of funds in the amount of NIS 270 million by means of an initial Public Offering (IPO) on the Tel Aviv Stock Exchange, it has now started raising another NIS 22 million on the stock exchange, this time through the issuance of debt.

In anticipation of the issuance of bonds that the company - which is engaged in the marketing and sale of LPG (condensed carbonate gas) and natural gas, and which is controlled by the Elco Company of the brothers Michael (Mikey) and Daniel Salkind - is seeking to carry out,  Midroog gave it a conditional initial rating of 1 A with a stable outlook.

This, while Midroog estimated that Supergas is in a strong business position and has significant market shares in the company's operating segments, alongside a relatively low level of revenue relative to its ranking".

Debt raising and its use to finance its current operations, according to Midroog, "support the company's business operations and financial flexibility. This occurs in part by reducing financing costs and removing most liens on the company’s assets."

Midroog notes that Supergas presents a "high dependency on the LPG industry" that constituted an average close to 80% of its revenues and close to 90% from its profits in 2017 - 2019, adding that "as the company's activities in the natural gas industry continue to expand, alongside the company's entry into the electricity generation sector, its dependence on the LPG sector will diminish”.

Midroog also noted, with regard to its financial results over the past three years (2017-2019) that the stability it demonstrated in revenues while maintaining "stable and prominently operating profitability rates (around 18% of revenues)" indicates "the company's ability to cope with fluctuations in energy prices, which contributes to the company's cash flow visibility”, and also contributes to its rating.

The rating company further stated that "the cash flows produced by the company are strong and stable and indicate a strong business activity", and that Supergas' low level of leverage "supports its robustness and financial flexibility".

Traded for about a week at a value of about NIS 1 billion.

Regarding the effects of the coronavirus on the activity, it is widely believed that the spread of the virus "is not expected to cause material harm to the company's operations and business results." This is despite a potential negative impact on its profitability, "as a result of a decrease in LPG and natural gas consumption and an increase in exposure to collection risks of customers from the leisure and recreation industries, including restaurants, cafes, banquet halls, hotels, etc."

Earlier this month, Supergas completed an initial capital raising on the stock exchange, raising approximately NIS 270 million, at a pre-money company valuation of NIS 1 billion, and issuing approximately 26% of its capital.

Since Supergas' shares began trading on the stock exchange a little over a week ago, they have not recorded a significant change in value, reflecting the company's present value of just over NIS 1 billion.

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