Israel Infrastructure Fund’s Exit: a 100% yield in 4 years on its investment in Highway 6

February 01, 2015 | The Marker

Clal Insurance, led by Izzy Cohen, purchased 3% of Highway 6 from Israel Infrastructure Fund (IIF) for NIS 135 Million and increased its holdings to 22%  •  The price reflects the project’s operational value at NIS 4 Billion •  Cohen had previously sold holdings in Highway 6 as CEO of Africa Israel at a profit of hundreds of millions of shekels.

Highway 6 has doubled in value through a series of transactions over the past 4 years.

NIS 2 Billion NIS 2.5 Billion NIS 2.6 Billion NIS 4 Billion
Sellers: Africa Israel & AECON Canada Seller: Shikun & Binui Seller: State of Israel Seller: Israel Infrastructure Fund
Buyers: IIF and Shikun & Binui Buyer: IIF Roads LP Buyer: Noy Cross Israel Partnership Buyer: Clal Insurance

 

A few days before Anat Levin took up the position of Vice CEO of Clal Insurance and CEO of CANAF, (Clal’s investments wing), Clal Insurance last week increased its holdings in Derech Eretz Ltd., concessionaire and operator of the Cross Israel Highway (Highway 6), to 22%. Highway 6 stretches over 140 kilometers, from the Ein Tut interchange in the north to the Maahaz interchange in the south. The concession is due to expire in 2029, when it will be returned to the state.

Clal Insurance purchased from Israel Infrastructure Fund (IIF), led by Yaron Kestenbaum, the fund’s direct holdings (about 3%) in Highway 6 for around NIS 135 Million – a price reflecting an operational value of about NIS 4 Billion and a yield of about 7% for the buyer. The yield reflects the low interest environment currently prevailing in the market.

IIF exits the investment with a nice yield of about 100% in four years, since the date of investment. Investors in the partnership established for the purposes of the investment, have already received a return of 30% on their investment. For Clal Insurance, the deal was led by CEO Izzy Cohen and Kobi Shalom, Senior VP of Credit, Private Investments and Alternative Assets at CANAF. For Cohen and Kestenbaum, this represents closure, since at the end of 2010, in Cohen’s role as CEO of Africa Israel Investment (following settlement of a debt of approximately NIS 8 Billion), Africa Israel and the Canadian AECON sold their holdings in Highway 6 in a distressed transaction to IIF and Shikun & Binui at a value of approximately NIS 2 Billion and with a profit of hundreds of millions of Shekels.

The current transaction was made at a value almost double that of the earlier transaction, and at a value 30%-50% higher than the value at which IIF Roads LP (headed by Harel, Leumi Partners and Amitim) purchased the remainder of Shikun & Binui’s holdings in Highway 6 (25.5%) in 2013. IIF Roads purchased the holdings for NIS 683 Million, (including taking over a loan of approximately 60 Million from Shikun & Binui – in existence since the time of the highway’s original owners. The price reflected a NIS 2.5 Billion operational value for Highway 6, and was slightly lower than what was paid by Noy Cross Israel Limited Partnership for the purchase of Highway 6’s shares from the State of Israel.

IIF did not invest in this transaction, but received approval from IIF Roads LP to manage its investment. For the time being, IIF will also continue to manage the investment on behalf of the Partnership.

IIF is the first Israeli private equity fund, specializing in managing infrastructure and energy assets, with more than $1 Billion under management. Amongst IIF’s prominent investments are Dalia Energies power plant; CityPass (the Jerusalem light rail concessionaire); Swissport – cargo terminal; Hayovel Lines – route 431; and Milgam.

Since Cohen’s arrival at Clal Insurance around two years ago, the company has become one of the dominant players amongst institutional entities in non-tradable credit transactions and direct investments in real estate and infrastructure. This company activity was also expanded abroad through the establishment of the Clal USA subsidiary.

Following the transaction, Cohen explained that “the current purchase is part of Clal Insurance’s strategy in equity (shares) transactions, both in the infrastructure world and in general, in order to obtain maximum yield for the buyers and high, excess yields in the current low interest environment. In light of our significant current investment in Highway 6, the flagship of Israeli infrastructure assets, we chose to continue investing in its shares.”


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