Yitzhak Tshuva’s venture capital fund Green is back asking the public for money. However, this time it is doing it through a rights issue. Green plans to issue rights for 19.2 million shares, with the price at NIS 3.00. If there a full response to the issue, Green will receive NIS 58 million gross. The trading day for the rights is December 16.

As of today (before the issue), Green has 7.5 million issued shares and 2.1 million options (Series3) a long way out of the money (exercise price NIS 65, compared with today’s stock exchange price of NIS 4.1). Anyone holding Green shares choosing not to exploit the rights, could find themselves diluted by more than 70%.

The success of the rights issue is only partially assured for the moment, through a commitment by Tshuva to exploit the rights he holds by virtue of the Green shares and options he owns. Tshuva will exercise 50.8% of the rights, thereby injecting NIS 29.3 million. Green itself will exercise another 7.7% of the rights, amounting to NIS 4.4 million, through a subsidiary. Excluding Tshuva and the subsidiary, the fund is therefore trying to raise NIS 24.3 million from the public.

Incidentally, on Tshuva’s participation in the rights issue, his investment in Green will reach NIS 104 million. In December 1999, Tshuva bought 1.1 million Green shares at NIS 16.4 per share, and in September 2000 he converted bonds to shares for NIS 57.6 million.

Tshuva’s participation in the financing round is assured, but it will be interesting to watch Bank Leumi’s reaction. Bank Leumi holds 4.7% of Green directly, and another 4.6% through its provident funds.

Most of Green’s debt is to Bank Leumi, and the demand that a rights issue be held came from the bank, as a condition for spreading its debt over five years. The bank must now make a decision whether to exercise the rights and inject NIS 4.3 million, or be diluted. If the bank decides to exercise the rights, it is liable to increase its stake in Green substantially (depending on the percentage exercised by others).

Green rose nicely in November, on high volumes, partly due to the general recovery of the Tel Aviv Stock Exchange. Whoever bought into Green in November should have taken into account the rights issue and the fact that they would be required to either add more capital or be diluted.

Whatever the case, Green’s prospectus details all the fund’s investments, including its obligations to Bank Leumi. Green has holdings in six listed venture capital funds: Mofet Venture Capital Fund Management (51.3%), Marathon Venture Capital Fund (32.9), Sadot R and D (LSE: SDT) (15.6%), Inventech (24.9%), Aura Investments (25.9%) and Commutech (34%). It also has a stake in private venture capital fund Samurai (28.6%).

Green has invested a huge NIS 430 million in public venture capital funds. The market value of its investment close to the time of the prospectus is NIS 132 million. In the past two years, Green received dividends from Mofet totaling NIS 61 million, meaning that  on paper the net loss, excluding financing expenses for its investments in public venture capital funds, is NIS 237 million. The NIS 16 million write-down Green reported on its investment in Samurai needs to be added, bringing the total aggregate loss to NIS 253 million, excluding financing expenses.

The huge investments were mostly financed by the issuing of shares, bonds and options (NIS 151 million) plus bank credit, mainly from Bank Leumi (NIS 331 million at the end of November). Bank Leumi gave Green loans totaling NIS 320 million, of which NIS 55 million was in Japanese yen, NIS 207 million in US dollars, and the rest in shekels. The remaining NIS 10 million was given by the Industrial Development Bank.

In October, Green came to an arrangement with Bank Leumi, whereby the bank would provide new credit totaling $76 million (NIS 327 million). NIS 50 million of this sum will be repaid in April 2007, while the remainder will be repaid in semi-annual installments of $2.6 million, through April 2007.

Green’s debt to Bank Leumi is secured by its assets. and by guarantees from Tshuva. The guarantees from Tshuva will bridge the gap between the credit given Green by Bank Leumi and the value of Green’s assets as collateral to the bank. The rights issue will help Green, if only to some extent, to repay some of its debts to the bank.