Kenon Holdings Ltd
NYSE:KEN
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Kenon Holdings Ltd
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Ladies and gentlemen, thank you for standing by. Welcome to the Kenon Holdings Ltd. conference call to discuss the second quarter 2019 results of Kenon. [Operator Instructions] As a reminder, this conference is being recorded.
Kenon published its press release with Q2 results earlier today. The press release as well as summary financial information of Kenon and OPC have been publicly submitted to the Securities and Exchange Commission on Form 6-K. These documents can be accessed from the SEC's website and have been filed with the Tel Aviv Stock Exchange and are available on the company's website.
With us on the call today are the management of Kenon and OPC Energy. This includes Mr. Robert Rosen, CEO of Kenon; Mr. Mark Hasson, CFO of Kenon; and Mr. Giora Almogy, CEO of OPC. Rob will first provide an update on Kenon, Giora will then provide an update on OPC, followed by Mark, who will discuss the financial results of Kenon. We will then open the call for question-and-answer session, followed by a concluding statement by Rob.
Before we start, I would like to point out that this conference call may contain forward-looking statements, including statements regarding expected events, developments or the expected performance of the company and its subsidiaries and associated companies, including those statements identified as forward-looking in Kenon's Q2 2019 results release. These statements are only estimates or plans and there is no guarantee that they will in fact occur. Actual events or results may differ materially from those projected, including as a result of changing market trends as well as other risks and uncertainties identified in the Q2 release and the Risk Factors section of the company's annual report on Form 20-F filed with the Securities and Exchange Commission and in the section entitled Caution Concerning Forward-Looking Statements in the earnings release. In addition, this conference call includes certain non-IFRS measures, including OPC's EBITDA. For the definition of such terms and the reconciliation to their most directly comparable IFRS measures, see Exhibit 99.2 to the Form 6-K furnished to the SEC today. The Form 6-K is available on the SEC website as well as Kenon's website.
With that, I will now hand the call over to Rob. Rob, please go ahead.
I'd like to welcome all of you, and thank you for joining us today for our investor conference call to discuss Kenon's second quarter 2019 results.
Starting with Qoros, earlier this year, we announced an agreement to sell 12% of our remaining stake at Qoros to the majority shareholder of Qoros for approximately $220 million plus additional funds that will be released from cash collateral. The process is progressing, and we continue to seek the remaining approvals required to complete the transaction. In terms of operational results, Qoros sold approximately 6,500 cars in Q2 2019. Apologies, there is a beeping here in the office.
There is a beeping in the office here. I'm going to hand it over to Giora to discuss developments at OPC, and I will circle back on the Kenon developments afterwards. Giora, go ahead, please.
Thank you, Rob.
So in OPC, an update on the construction of the OPC-Hadera power plant, we are constructing a 148-megawatt co-generation power plant in Israel, the total cost of approximately ILS 1 billion, which is approximately $270 million -- $274 million.
As of June 2019, OPC-Hadera has invested in aggregate of ILS 846 million, which is approximately $237 million. We expect to reach commercial operation in the fourth quarter of this year. This takes into account delays that occurred during the plant construction, including the timetable for replacement of faulty component discovered during the performance of the construction work.
On Tzomet, OPC is developing an open-cycle natural gas-fired power station with the capacity of approximately 396 megawatts in Israel. We are progressing with regard to the Tzomet project. In April, the electricity authority granted a conditional license to the project. The project is required to reach financial closing by the end of 2019, and we are obviously working for that goal.
On the Tamar arbitration, in July 2013 (sic) [ 2019 ], OPC received a ruling in the arbitration proceeding with the Tamar Group relating to the indexation of the natural gas price formula in OPC-Rotem's gas agreement. The arbitration tribunal agreed with our position and ordered Tamar Group to pay OPC $4 million in expenses and to release $22 million that OPC deposited in trust account in connection with the dispute.
In terms of financial results, OPC revenues in the second quarter 2019 were $85 million as compared to $84 million in the Q2 2018, mainly due to an increase in electricity tariffs at the beginning of this year. OPC's EBITDA in the second quarter of 2019 was $18 million. This is the same as the second quarter in 2018. OPC's net profit in the second quarter was nil, the same as in the second quarter 2018.
Please note that OPC's results as published in Israeli shekels by OPC are slightly different from those published by Kenon in USD as it does include the impact of exchange rate fluctuations and the translation of the results from shekels to U.S. dollars.
Finally, share issuance. In the last quarter, we raised a total of approximately ILS 275 million by issuing shares in Israel's Stock Exchange. As a result, Kenon's interest in OPC decreased to 70% on a fully diluted -- 69% on a fully diluted basis. Having a public float of larger than 30% is expected to keep OPC in [ relative and ] Tel Aviv index.
This ends my summary, and I will now hand over to Mark, Kenon's CFO, for his financial summary.
Before Mark begins, let me circle back, I apologize again for the disruption on my end.
In terms of operational results for Qoros, just to highlight that Qoros sold approximately 6,500 cars in the second quarter of 2019, which primarily reflects orders from a leasing company introduced by Qoros' majority shareholder.
Moving on to Latin America, I'm pleased to report that in July, Kenon's subsidiary received a favorable award of $30 million plus interest in a commercial arbitration proceeding, which is subject to tax. The arbitration is related to a dispute over an insurance claim, which we retained following the sale of our Inkia businesses.
[Technical Difficulty]
Mark, go ahead please.
Thanks, Rob.
Kenon's consolidated results are largely made up of the consolidated results of OPC, which were described earlier by Giora. The results of Qoros and ZIM are reflected under results from associates. In Q2 2019, Kenon incurred a net loss of $8 million, and you can find additional details in our 6-K, which was filed earlier today.
In terms of liquidity and capital resources, as at June 30, 2019, Kenon's cash balance was $30 million and Kenon does not have any material debt. And finally, as a reminder, Kenon is the beneficiary of a 4-year deferred payment agreement, reflecting deferred consideration from the sale of its Inkia power businesses in 2017. Amounts under this agreement accrue interest at a rate of 8% per annum. And at 30th of June 2019, the accrued amount is $197 million.
That ends our summary, and we will now be happy to take your questions. Operator?
[Operator Instructions] The first question is from Shahar Keinan of Brosh Capital.
Two questions, please. One, with respect to Kenon solo G&A, where I see that OPC's G&A for the second quarter was about $4 million and the consolidated number was $8 million, which means $4 million quarterly, $16 million annually for G&A on the co -- on the Kenon level, which seems pretty high, and I was wondering if you can explain that. And second, if you can give more color about the timetable that you see in respect of the Qoros sale.
This is Rob. Let me begin and, again, I apologize for background noise. I'm in an office here with some -- an error in the emergency system. But for the G&A, the amount at Kenon does reflect the amount of litigation, arbitration expenses, legal fees and whatnot. So it is -- it has been inflated this year, in particular, as we retained claims after the sale of IC Power and continue to pursue those claims.
With respect to the Qoros transaction, unfortunately, we don't have any specific timetable. The regulatory process in particular in China is outside of our control, and we continue to pursue it as best we can. But at this point, we don't have a definitive timetable.
Okay. So without the onetime effect from the second quarter, what do you expect the G&A for Kenon only should be in the next quarter?
Sorry. Couple things on that. First, I wouldn't call it a onetime effect. Again, we are continuing to pursue these claims. So some of these expenses are going to continue. And I think it's difficult to forecast. Kenon itself has a relatively small overhead. So we don't expect that to be very significant generally for Kenon. Really, it's these other expenses which primarily drive it.
[Operator Instructions] There are no further questions at this time. Mr. Rosen, would you like to make your concluding statement?
Thank you, operator. On behalf of the management of Kenon Holdings, I'd like to thank you all for your interest in our company. If you have any further questions, please feel free to contact Kenon's Investor Relations team, whose contact details are on the press releases. Thank you, again, and farewell from me. Have a nice day.
Thank you. This concludes the Kenon Holdings conference call. Thank you for your participation. You may go ahead and disconnect.