Bethel Finance: Gov't agrees to one-third of IEC guarantee request

www.bethelfinance.com
Sources inform ''Globes'' that the Ministry of Finance is willing to guarantee up to a maximum of NIS 3 billion on debt raised by Israel Electric Corporation (IEC) (TASE: ELEC.B22) - less than a third of the NIS 10 billion in guarantees that the utility has asked for. On Monday, the ministry approved guarantees for a NIS 1.5 billion private debt placement by the IEC, which will be held this week.

In its prospectus, IEC states that it wants to raise up to NIS 10 billion in debt in July. It reportedly plans to actually raise only part of the amount - NIS 6 billion - but the Ministry of Finance refuses to back even this sum in full. By law, the government can guarantee up to 10% of the state budget - NIS 24.7 billion.

The Ministry of Finance believes that a debt offering by the IEC is the least bad alternative, and that it is better than raising electricity rates and forcing the public to cover IEC's cash flow problems. This is the position of Acting Ministry of Finance director general Doron Cohen, who is also director of the Government Companies Authority.

Accountant General Michal Abadi-Boiangiu has conditioned government guarantees on a public issue of tradable bonds by the IEC, which requires a prospectus. The last time that the utility held a public bond offering was in 2002. Every subsequent offering was by private placement with investment institutions, which does not require a prospectus.

"A prospectus means order," Abadi-Boiangiu told the cabinet at its last meeting, in response to ministers' questions about progress on IEC's crisis. In addition to public disclosure about IEC's condition, a prospectus, the cost of non-tradable bonds is higher than the cost of tradable bonds, which means that a public offering should save IEC considerable money. A prospectus can also serve as a basis for future offerings at low cost.