Doral bets $738 million on its U.S. renewable energy business
The Israeli company will more than double its stake in Doral LLC to 53.2%, valuing the American subsidiary at about $4.1 billion in the latest transaction and potentially postponing plans for a separate IPO.
Doral Energy has embarked on an ambitious expansion of its U.S. operations. The Israeli renewable energy company will invest a total of $738 million in its American subsidiary, Doral LLC, increasing its stake to 53.2%, from 26% currently. The investment is equivalent to approximately NIS 2.2 billion at the current exchange rate.
“This is a strategic deal for Doral that gives it stronger access to its main growth engine, which is Doral LLC’s U.S. operations, while at the same time providing sufficient liquidity to advance its projects,” Doral Energy CEO Yoni Hantis said.
The transaction consists of three components. The largest is a $400 million capital injection by Doral into Doral LLC, which focuses on the U.S. market. In exchange, Doral will receive an additional 9.7% of the subsidiary. The parent company had already prepared for the investment by raising NIS 920 million ($307 million) from institutional investors in June.
Doral will also acquire a further 5.8% of Doral LLC from Nick Cohen, the subsidiary’s CEO, through CAG, a company he owns. In exchange, Cohen will receive Doral shares worth $206 million, as well as a $15 million cash payment now and a further $20 million payment in 2028.
The third component is the completion of a transaction agreed between Doral and CAG in November, under which Doral will invest $132 million in exchange for an 11.8% stake in Doral LLC.
Taken together, the transactions will increase Doral’s stake in the U.S. subsidiary by 27.2%, to 53.2%. Migdal will hold 11.4%, while Dutch investment fund APG will hold 35.4%.
Gilad Ben Zvi, an energy analyst at Leader Capital Markets, described the transaction as positive for Doral. “It increases the market’s confidence in Doral, which announced its intention to carry out the move a long time ago, and in practice it will allow the company to participate in a larger flow of investment in the areas where it is already active, which could subsequently create significant value,” he said.
Hantis told investors that Doral LLC has accumulated a pipeline of 7.9 gigawatts of renewable energy projects and 2.5 gigawatt-hours of storage capacity. Most of the projects have already secured eligibility for U.S. tax benefits through so-called Safe Harbor arrangements.
According to Hantis, the new capital injection will allow Doral LLC to advance the projects, with the aim of connecting most of them to the electricity grid by 2029 and completing the process by 2030. Once connected, the projects are expected to add approximately NIS 620 million ($207 million) annually to Doral’s share of Doral LLC’s EBITDA.
The complex structure of the transaction, together with protection and dilution mechanisms established in previous deals between Doral LLC’s shareholders, makes it difficult to determine precisely what valuation the overall transaction implies.
On the face of it, however, the $400 million capital injection in exchange for 9.7% of Doral LLC reflects a valuation of approximately $4.1 billion. That is more than twice the valuation reflected in the November transaction, which itself was affected by the protection mechanisms agreed between the shareholders.
According to Ben Zvi, “Doral’s investment, together with debt, gives the deal an EV-to-EBITDA multiple of between 7 and 8, compared with multiples of more than 15 for comparable companies. This represents a very attractive multiple for Doral, which was able to achieve it through the protection and dilution mechanisms from previous transactions.”
Late last year, Doral was promoting a possible IPO of Doral LLC at an estimated valuation of around $2 billion, with the aim of raising $400 million to $500 million.
Ben Zvi believes the latest transaction could postpone those plans.
“It appears that the current move postpones the possibility of an IPO,” he said. “It simplifies and stabilizes the company’s holding structure, effectively eliminating the need for an IPO that was intended to achieve the same result.”
The capital injection could also allow Doral LLC to reduce existing debt and raise additional debt, further reducing its need to tap public markets, he said.
However, a senior official at an institutional investor that follows Doral told Calcalist that the simplified ownership structure and removal of some of the protections previously held by shareholders could actually make an IPO easier at a later stage. The possibility of a listing, therefore, has not been ruled out.
One person who could be disappointed by the delay is former Mossad chief Yossi Cohen, who serves as a director of Doral LLC. Under his employment agreement, Cohen is entitled to a $2 million bonus if the company goes public.
Cohen also holds 37,400 options in Doral LLC, with an exercise price of $802 per share. The options imply a company valuation of approximately $1 billion. They have already vested and can be exercised until August 2028.
If exercised, the options would give Cohen a 1.8% stake in Doral LLC. Based on the valuation implied by the latest transaction, his stake would be worth approximately $123 million, compared with an acquisition cost of about $30 million, implying a pre-tax gain of roughly $93 million.
During the investor call, Hantis was also asked about the U.S. government’s decision to increase the price of base materials used to manufacture chips and solar panels imported into the United States. The measure is expected to increase the cost of a solar project by approximately 10%.
Hantis said it could take time for the measure to take effect and that it could face legal challenges. In any event, he said, the order applies only to agreements signed after its publication.
That limits the immediate impact on Doral’s more mature project pipeline, where solar panels have already been reserved through advance transactions, he said. Doral’s contracts with panel suppliers also include mechanisms designed to protect the company from such cost increases.
Hantis argued that this could leave Doral in a relatively stronger position than competitors that have not yet secured their equipment. He also said that any resulting increase in electricity prices could ultimately work in Doral’s favor.
The transaction nevertheless marks a significant bet by Doral on the U.S. market, putting more capital behind a project pipeline that management expects to convert into billions of dollars of renewable energy assets over the coming years, while making Doral LLC a much more central part of the Israeli parent company’s future.
