Dispute with Securities Authority: Nofar Faces Potential Early Debt Repayment

The renewable energy company Nofar, controlled by Ofer Yanai, is in the midst of an expansion and fundraising campaign that has pushed its stock to a record price. However, the company is now facing claims from the Securities Authority regarding the way it interprets and publishes its liabilities. In a certain scenario, this could give Nofar's debt holders grounds to demand immediate repayment of the bonds it issued.

Last week, the company reported that it had decided to convene a meeting of the holders of the five series of bonds it issued (a debt of 2.2 billion shekels), with the goal of approving its interpretation of how it examines and presents its liabilities, contrary to the interpretation presented by the Authority. If the proposal is not accepted, the bondholders will be able to demand immediate repayment of the debt, as the company would be in breach of its financial covenants.

The Core Dispute: Net Financial Debt

At the center of the dispute is the interpretation of the company's "net financial debt." Nofar believes that the bond trust deed allows it to neutralize both owner financing (equity or loans) and senior debt taken on by a project, up to the construction cost ceiling. The Securities Authority, however, argues that once senior debt is provided to a project, the company is no longer entitled to neutralize owner financing, as the entry of an additional lender increases risk for bondholders.

Nofar emphasizes that other public companies in its sector apply an interpretation similar to its own.

Rating Under Review

These differing interpretations affect compliance with financial covenants, specifically the requirement that the ratio between "consolidated net financial debt" and EBITDA be below 15 for series A-D and below 18 for series E. Under the Authority's strict interpretation, the company fails to meet these ratios.

Credit rating agency Midroog has placed Nofar's A3.il rating and its bonds under Credit Review with negative implications. However, the agency noted that if the company's interpretation is approved at the holders' meetings, "no negative implications for the company's rating are expected."

Ofer Yanai, founder and CEO, stated:

"The interpretation was adopted under the company's previous CEOs, but I share it. When I took office, we checked the issue and decided that we feel comfortable with the understanding."

Nofar supports its position with opinions from the Herzog law firm, EY, and MNS financial consulting. Market estimates suggest that institutional bondholders are likely to approve Nofar's accounting interpretation. Bond yields, while rising slightly after the Midroog announcement, remain at single-digit levels of up to 5.8%.

Nofar's stock has trended downward in recent weeks, losing about 37% of its value since its May peak. Nevertheless, the stock has recorded a positive return of nearly 75% over the past year, with a market capitalization of approximately 7 billion shekels.

Expansion Spree

The Securities Authority's objections come as Nofar is in the middle of an expansion campaign. Last week, its subsidiary Nofar Israel signed a deal to acquire a 47.5% stake in the Reindeer power station from Phoenix Insurance and other holders for 855 million shekels. Additionally, Nofar signed a memorandum of understanding with Meitav Provident and Pension for a 200 million shekel investment in Nofar Israel.

In parallel, Yanai announced a move to increase Nofar's stake in renewable energy company Ellomay Capital from 46% to 75% through a share swap.