Nofar Energy buys 47.5% stake in Reindeer power station

OY Nofar Energy (TASE: NOFR) is acquiring almost half of the Reindeer power station in the southern Sharon region. Nofar has signed a deal with Phoenix Finance (TASE: PHOE) and five private owners for an overall 47.5% stake in the power station, which has yet to be built and for which financing has not yet been closed. Nofar will pay the Phoenix NIS 711 million and a further NIS 144 million to the private owners.

This deal is taking place at the same time as a swap deal between Generation Capital (TASE: GNRS) and Rapac (TASE: RPAC). The deal will leave Generation with 52.5% of Reindeer, while Nofar will hold the rest. Nofar will sign an option with Generation to purchase the entire Reindeer power station in the event that the regulator requires it.

This series of transactions is taking place just as the Generation Capital is acquiring Shikun and Binui Energy (TASE: SBEN) for NIS 4.45 billion. This transaction, one of the largest in the electricity production market, could be viewed as problematic by the regulators of the electricity sector: the Electricity Authority and the Competition Authority. They are concerned about concentration in the field and are interested in encouraging competition and “separation of powers.” Therefore, Generation and Rapac will sell each other the shares they hold in the joint power plants: MRC (Alon Tavor) will go to Rapac, and Reindeer will go to Generation.

At the same time Nofar will buy all of Reindeer’s remaining shares, at a value that is considered high considering that the plant has not yet been built, and has not yet achieved critical conditions for its construction, such as a gas supply agreement and financial closing. However, due to the huge demand for electricity in Israel, and the complications with the approval of the expansion of the rival Dorad plant, Nofar believes that the plant will begin production in the coming years.

In the event that the swap deal between Generation and Rapac is not approved by the Electricity Authority, Generation is preparing an additional option in which they will sell Nofar their remaining shares in Reindeer at the same valuation of the power plant (NIS 1.8 billion). If this deal also goes through, Nofar (which deals mainly with renewable energy) will own 100% of a conventional gas-fired power plant.

If Nofar ends up acquiring the entire power plant, the deal includes a surprising and peculiar condition: Powergen (Generation’s energy company) will continue to control Reindeer until its commercial operation, and from that point on, ownership will be switched for five years. After five years, the plant will return to Powergen in full, but five years later it will be transferred back to Nofar, and so on. This alternating ownership change is apparently intended to meet the regulator’s requirements for reducing concentration in electricity production, without actually giving up ownership of Reindeer. Ownership will remain, in a sense, joint, as Powergen and Nofar will receive veto rights over each other on certain issues. Powergen will also remain the operators of the plant even during periods when they are not the owners.