Av-Gad and Barak Financials Nearing Completion of Massive Partnership Deal

The massive deal between Av-Gad and Barak Financials is nearing completion. Over the weekend, the construction company received tax authority approval to split rights and transfer them to the joint company "Av-Gad Be-Ir". As part of the partnership, Av-Gad will receive a financial boost to help deepen its hold on the urban renewal sector in central Israel.

Financial Structure of the Partnership

Recall that in August, Av-Gad agreed to transfer 24 projects to a joint company, an urban renewal arm. Barak Financials will invest 49 million shekels. According to the agreement, Av-Gad will hold 51% and Barak 49%. It was agreed that Barak will inject the money and add another 4 million shekels for past expenses, with Av-Gad estimating that the full amount will be added to equity, tax-free.

Approval from the Tax Authority was a condition precedent for the deal. The company received approval to split rights and liabilities in 11 urban renewal projects and transfer them to the joint subsidiary. In return, Barak Financials will be allocated (in two stages) 44,000 ordinary shares of "Av-Gad Be-Ir", constituting 48.9% of its issued and paid-up share capital. In addition, Barak Financials will be allocated a 49% stake in all rights and liabilities in the partnership regarding the "Beit Hasson - Anielewicz - Ben Yehuda" project in Petah Tikva.

Operations and Sales Performance

Av-Gad, managed by Ra'am Ratzon, is considered one of the prominent players in the urban renewal field. The company's second-quarter report reflects its ambition to continue increasing its backlog of work: the company has 12 maturing projects comprising 1,824 apartments, and another approximately 39,000 housing units in the planning pipeline.

Regarding the pace of apartment sales, in the first quarter the company sold only 10 apartments at an average price of about 3.27 million shekels per apartment. In the second quarter, a significant recovery was recorded, almost tripling sales to 32 apartments at an average price of 3.087 million shekels. After the balance sheet date, the company sold an additional 9 apartments. Most sales were recorded in the Bezalel Shalom project in Petah Tikva.

Revenues and Cash Flow

The company's revenues in the first half of the year grew from 81 million shekels last year to 116 million shekels, a growth stemming mainly from progress in the execution pace of projects. In the second quarter, the company moved from a loss of 7.5 million shekels in the corresponding quarter to a net profit of approximately 29 million shekels.

"The ongoing negative operating cash flow does not indicate a liquidity problem, and the company is expected to meet its obligations," board members stated.

The reports highlight a continuous negative cash flow from operating activities in the consolidated report totaling approximately 98 million shekels. The board of directors maintains that the negative cash flow does not indicate a liquidity issue and that the company is fully positioned to meet its financial obligations moving forward.