SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15a-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

Report on Form 6-K dated

 

January 3, 2019

(Translation of Registrant’s Name Into English)

 

8 Amal Street

Afeq Industrial Park

Rosh Ha’ayin 48103

Israel

(Address of Principal Executive Offices)

 

(Indicate by check mark whether the registrant files or will file annual reports

under cover of Form 20-F or Form 40-F.)

 

Form 20-F ☒          Form 40-F ☐

 

(Indicate by check mark whether the registrant by furnishing the

information contained in this Form is also thereby furnishing the information to the

Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

 

Yes ☐          No ☒

 

(If “Yes” is marked, indicate below the file number assigned to the

registrant in connection with Rule 12g3-2(b): 82-  ______)

 

This Form 6-K is incorporated by reference into the Company’s Registration Statements on Form S-8 filed with the Securities and Exchange Commission on December 4, 2002 (Registration No. 333-101652), September 5, 2006 (Registration No. 333-137102), September 11, 2008 (Registration No. 333-153419), August 17, 2015 (Registration No. 333-206420), November 12, 2015 (Registration No. 333-207946), March 14, 2016 (Registration No. 333-210151) and on December 27, 2017 (Registration No. 333-222294), November 21, 2018 (Registration No. 333-228502)

 

Enclosure: Shelf Offering Memorandum - Partner Communications Company Ltd.

 

 

January 3, 2019

 

Partner Communications Company Ltd.

(hereinafter: “the Company” or “Partner”)

 

 

Pursuant to the Company’s shelf prospectus of June 13, 2018 (hereinafter: “the Shelf Prospectus” or “the Prospectus”), as published by the Company on June 13, 2018 (reference no.: 2018-02-057361), and pursuant to the provisions of the Israel Securities Regulations (Shelf Offering of Securities), 5766 – 2005 (hereinafter: “Shelf Offering Regulations”), the Company is pleased to publish herewith a shelf offering memorandum for the issue and listing of the Offered Securities, as defined hereunder (hereinafter: “the Shelf Offering Memorandum” or “the Offering Memorandum” or “the Memorandum”) for trading on the Tel-Aviv Stock Exchange Ltd. (hereinafter: “the TASE”).

 

American Depositary Shares (hereinafter: “ADS”) of the Company (with each ADS representing one share of the Company) are listed for trading on the NASDAQ Global Select Market under the ticker “PTNR.” Additionally, shares of the Company are listed for trading on the TASE under the ticker “Partner,” and three series of debentures of the Company are listed for trading on the TASE under the symbol "Partner K3," "Partner K4" and "Partner K6" pursuant to a listing document by virtue of the provisions regarding dual listing in Chapter E.3. of the Israel Securities Law, 5728 – 1968 (hereinafter: “Securities Law”) and the regulations enacted by virtue thereof. The Company’s current reports are in accordance with the law in the United States and are in English, and are in accordance with the dual listing rules prescribed in Chapter E.3. of the Securities Law and the regulations enacted by virtue thereof. The Company shall also continue to report according to the dual listing rules subsequent to the issuance pursuant to this Shelf Offering Memorandum.

 

As set forth in clause 1.3.4 of the Shelf Prospectus, the Company undertook that, as of the date of issuance of its Debentures to the public, solely in Israel, the Company shall be subject to reporting obligations in accordance with the hybrid disclosure model, as defined in the Shelf Prospectus. Therefore, this model applies as of the date of issuance of the Debentures to the public. According to the model, the Company is required to ascertain the existence of "warning signs" as defined in the Securities Regulations (Periodic and Immediate Reports), 5730 – 1970, and, to the extent that there are warning signs, it must provide disclosure as specified in clause 1.3.7 of the Shelf Prospectus.¹

 

The Memorandum includes supplementary information (either in the Memorandum or by way of referral) about material developments in the Company since the date of the Shelf Prospectus, and additional information that is required pursuant to the United States Securities Act of 1933, as amended from time to time (hereinafter: “Securities Act”) and the rules and regulations of the United States Securities and Exchange Commission that would have applied, had the offering of securities as stated been registered under the Securities Act using the Form F-3 registration statement, including updated financial information based on the rules and requirements of the United States Securities and Exchange Commission in Item 8 of Form 20-F, and this, in addition to the details required pursuant to the Shelf Offering Regulations. In accordance with the opinion that the Company received from a U.S. law firm (hereinafter: "the U.S. Lawyer"), the Memorandum, together with the documents incorporated by reference herein and the Shelf Prospectus, together with the documents incorporated by reference therein, are appropriately responsive in all material respects to the requirements of the Securities Act and the applicable rules and regulations of the U.S. Securities and Exchange Commission (hereinafter: “the SEC”) that would apply to it if it were being filed with the SEC as a prospectus filed as part of a registration statement on Form F-3 in connection with a public offering in the United States of the Offered Securities (as defined below)  under the Securities Act, , apart from the sections of the Offering Memorandum that are in Hebrew, and apart from the fact that particular clauses and appendices would have been included in Form F-3 that are not included in the Offering Memorandum and that are technical in nature and are immaterial to the matter of offering securities to the public in Israel.

 

The offering of the Series G Debentures by the Company within the scope of this Shelf Offering Memorandum (hereinafter: “the Offered Securities”) shall be done solely in Israel and shall not be done in the United States and/or to U.S. Persons, as this term is defined in Regulation S under the Securities Act, as amended from time to time (hereinafter: “Regulation S”), and this, according to the conditions of the exemption from the registration requirements pursuant to Category 1 of Regulation S.

 

The Offered Securities may be resold in reliance on Rule 904 of Regulation S, whereby, the Offered Securities may be resold on the TASE by any person (excluding resales by the Company, a distributor, or affiliate to any of them (except an officer who is an affiliate solely by virtue of holding such office), or any person acting on behalf of any of them), without imposing any blocking period or other restriction), provided that: (1) the offering is not made to a person in the United States; (2) the seller and anyone acting on its behalf did not know that the transaction has been organized in advance with a purchaser in the United States; and (3) No Directed Selling Efforts, as this term is defined in Regulation S, shall be done in the United States by the seller, affiliate or by any person acting on its behalf.

 

The Company has provided the TASE with an opinion of the U.S. Lawyer according to which, based on the assumptions, reservations and limitations in the opinion, the offering in accordance with the Shelf Offering Memorandum is exempt from the registration requirements of the Securities Act and that, in accordance with Regulation S, the securities being offered according to This Offering Memorandum shall be eligible for  resale on the TASE by any person (except as and subject to that detailed above).

 

Any purchaser of the Offered Securities pursuant to the Memorandum shall be deemed as a party who declared: (i) that it is not located in the United States and that it is not a U.S. Person; (ii) that it is not purchasing the Offered Securities for or on behalf of a U.S. Person or any person located in the United States; (iii) that it was not staying in the United States when it submitted an application to purchase or when it purchased the Offered Securities; and (iv) that it is not purchasing the Offered Securities with an intention to carry out a “distribution” of the said Offered Securities in the United States (as this term is defined in the U.S. securities laws).

 

Pursuant to that stated above, all the “Distributors” (as this term is defined in clause 15 of the Memorandum) have undertaken that they shall offer the Offered Securities solely in Israel and only parties that are not a U.S. Person and that they did not and shall not perform any action or publish any advertisement in the United States pertaining to the promotion of the sale of the Offered Securities.

 

Solely the laws of the State of Israel shall apply to This Memorandum and no other laws whatsoever shall apply; solely the competent courts in Israel and they alone shall have sole jurisdiction in relation to any matter pertaining to the said matters; and the offerees, by consenting to purchase the Offered Securities, are accepting this sole jurisdiction and this choice of law.

 

The Shelf Prospectus and the Shelf Offering Memorandum were not filed with the United States Securities and Exchange Commission. The Offered Securities shall not be registered under the Securities Act in the United States, and any person purchasing Offered Securities pursuant to this Shelf Offering Memorandum shall be allowed to offer, sell, pledge or transfer the said Offered Securities in any other way solely: (i) pursuant to Regulation S; (ii) pursuant to a registration statement filed under the Securities Act; or (iii) pursuant to an exemption from the registration requirements of the Securities Act. The Company is not undertaking to register the Offered Securities for offer or sale in the United States under the Securities Act.

 

A decision to purchase the Offered Securities should be reached solely relying on the information contained (including by way of referral) in the Shelf Prospectus and in the Shelf Offering Memorandum. The Company did not allow any person or other body to furnish information that differs from that specified in the Shelf Prospectus or in This Memorandum. The Shelf Prospectus and This Memorandum do not constitute an offering of securities in any other country apart from in the State of Israel.

 

The terms used in this Shelf Offering Memorandum shall have the definitions ascribed to them in the Shelf Prospectus, unless otherwise stated.

 

1.	The Offered Securities

 

 

1.1

Up to NIS 275,000,000 par value, registered debentures (Series G) of NIS 1 par value each,  bear fixed  annual interest at a rate to be determined in the tender and shall not exceed 4.00% and are not linked (principal and interest)2 to any linkage base (hereinafter: “the Debentures (Series G)” or “the Debentures”).

 

1.2

Notwithstanding clause 1.1,  if and to the extent that, during the issue of the Debentures (Series G) being carried out pursuant to this Shelf Offering Memorandum, the total demands exceed NIS 225,000,000 par value of Debentures (Series G) (hereinafter: “the Quantity being Issued to the Public”) (the said difference shall be called hereinafter: “the Excess Sum”), the Company shall not issue more than the Quantity being Issued to the Public pursuant to this Shelf Offering Memorandum and, in such instance, the following provisions shall apply:

 

1.2.1

The Company shall announce the amount of the Excess Sum and the total issue that the Company intends to issue by virtue of this Shelf Offering Memorandum (which, as stated, shall not exceed NIS 225,000,000 par value) in the report of the results of the issue;

 

1.2.2

No units shall be issued to the public in the amount of the Excess Sum (only), and no money shall be collected from the subscribers in respect of the Excess Sum (only);

 

1.2.3

The allotment to the subscribers who responded during the public tender pursuant to the provisions of clause 2 of the Shelf Offering Memorandum (determining the interest rate in the tender and allotting the units) shall be allocated pro rata between the quantity being issued to the public and the quantity offered pursuant to the Shelf Offering Memorandum or the orders for Debentures (Series G) actually received, the lower of the two, for example, if orders are received during the public tender reflecting NIS 265,000,000 par value of Debentures (Series G),  then, in light of the Company’s resolution not to issue up to a total of NIS 225,000,000 par value of Debentures (Series G), about 85% of the volume of the allotment according to the results of the tender (225,000,000/265,000,000) shall be allocated to every subscriber whose order would have been accepted pursuant to the results of the tender, which is being held according to the provisions of clause 2 of the Shelf Offering Memorandum.

 

1.3

The principal of the Debentures shall be repayable in six annual payments, that will be paid between the years 2022 until 2027, whereby each of the first four payments shall constitute 10% of the inclusive par value of the principal of the Debentures, the fifth payment shall constitute 20% of the inclusive par value of the principal of the Debentures and the sixth payment shall constitute 40% of the inclusive par value of the principal of the Debentures.  Payments of the principal shall be paid on June 25 of each of the years 2022 through 2027 (inclusive).

 

1.4

The balance of the outstanding principal of the Debentures, as it shall be from time to time, shall bear fixed annual interest at the rate to be determined in the tender. The interest in respect of the Debentures is payable annually, on June 25 of each of the years 2019 through 2027 (inclusive) for the twelve (12) month period ended on the payment date (excluding the first interest period as detailed below) so that the first payment shall be paid on June 25, 2019 and the last payment shall be paid on June 25, 2027, all this, except for the payment in respect of the first interest period that shall be paid on June 25, 2019, in respect of which the interest shall be paid for the period beginning on the first trading day after the date of the tender to the public and ending on the first payment date of the interest, calculated on the basis of 365 days a year, according to the number of days during this period. The final payment of the interest on the principal of the Debentures (Series G) shall be paid together with the final payment on account of the principal of the Debentures (Series G), against the delivery of the Debenture certificates (Series G) to the Company.

 

1.5

The Company shall publish an Immediate Report of the results of the tender in respect of the issue of the Debentures (Series G), and in it, the Company shall announce the interest rate determined in the tender, the interest rate in respect of the first interest period of the Debentures (Series G) and the annual interest rate that shall be paid.

 

1.6

The Deed of Trust relating to the Debentures (Series G) (as defined hereunder in clause 8.1) prescribes that, subject to the conditions prescribed in clause 2.4 of the Deed of Trust, the Company shall be allowed to expand the series of Debentures (Series G) at any time, at its sole discretion (whether by way of a private offering, or pursuant to a prospectus, or pursuant to a shelf offering memorandum or in any other way), including to a related holder, without having to receive the approval of the trustee for the Debentures (Series G) and/or of the holders of the Debentures (Series G) existing at that time, at any price and in any manner that the Company shall deem appropriate, including at a discount rate or at a premium  that differs from the discount rate of the debentures that are in circulation at that time (if any) (or without a discount or without a premium). If the discount rate that shall be determined for the Debentures (Series G) due to a series expansion shall differ from the discount rate of the Debentures (Series G) that are in circulation at that time, then, prior to expanding the series of Debentures (Series G), the Company shall apply to the Israel Tax Authority in order to obtain its approval that, on the matter of deducting withholding tax from the discount fees in respect of the said Debentures, a uniform discount rate shall be set for the said Debentures according to a formula that weights the various discount rates (if any) in Series G, and all in conformity with the provisions prescribed in clause 2.4.1 of the Deed of Trust.

 

1.7

The Debentures (Series G) that shall be in circulation and additional debentures of that same series that shall be issued (if any) as stated above in clause 1.6, shall constitute (as of the date of their issue) a single series for all intents and purposes.

 

1.8

If, subsequent to the date of the initial issue of the Debentures (Series G), the Company shall expand the series of the Debentures (Series G), the holders of Debentures (Series G) that shall be issued within the framework of the series expansion shall not be entitled to receive a payment of principal and/or interest in respect of the Debentures (Series G) if the record date for the payment thereof predates the date of their issue.

 

2.	Details of the Offering (Tender Number – 1151752)

 

2.1

The Debentures (Series G) are being offered to the public in 275,000 units of NIS 1,000 par value each (hereinafter: "the Units"), for a consideration of NIS 1,000 per unit, by way of a tender, on the annual interest rate to be borne by the Debentures (Series G), which shall not exceed 4.00% (hereinafter: "the Maximum Interest Rate"). The Debentures (Series G) will be offered by means on a uniform offering, as stated in the Israel  Securities Regulations (Mode of Offering of Securities to the Public), 5767 – 2007 (hereinafter: “the Mode of Offering Regulations”)

 

2.2

Any subscriber must specify in its order the number of Units that it wishes to purchase and the interest rate that it is bidding, which shall not exceed the Maximum Interest Rate. An order for the purchase of Units that shall be submitted within the scope of the tender and for which the interest rate specified therein exceeds the Maximum Interest Rate, or that did not specify an interest rate, shall be nullified and shall be deemed as if not submitted.

 

2.3

Any subscriber may submit up to three (3) orders at different interest rates (which shall not exceed the Maximum Interest Rate), which shall be quoted at increments of 0.01%; i.e., bids may be submitted at interest rates of 4.00%, 3.99%, 3.98% and so forth. Any order of Units that tenders a bid not quoted according in increments of 0.01% shall be upwardly rounded to the next increment.

 

2.4

Orders may be submitted for the purchase of whole Units only. Any order that shall be submitted for any fraction of a Unit shall be deemed an order being submitted solely for the number of whole Units specified therein, and the fraction of a Unit specified in the order shall be deemed as if not included therein ab initio.

 

2.5

Subject to any law, the orders for the purchase of the offered Units are irrevocable. Every order shall be deemed an irrevocable undertaking on the part of the subscriber to accept the Debentures that shall be allotted to it as a result of full or partial acceptance of its order, and to pay the full price of the Debentures, pursuant to the terms of the Shelf Prospectus and the Shelf Offering Memorandum, that it is entitled to receive, through the Issue Coordinator (as this term is defined hereunder) pursuant to the terms of the Shelf Prospectus and the Shelf Offering Memorandum.

 

2.6

The offering of the Offered Securities pursuant to the Shelf Offering Memorandum is not secured by underwriting.

 

In this regard, “Subscriber” or “Applicant” – including a family member residing with the subscriber, and a Classified Investor that is ordering Offered Securities pursuant to clause 4 of the Memorandum.

 

2.7

The timeframe for submitting orders

 

The period for the submission of orders for the purchase of the Units being offered to the public shall be opened on January 3, 2019 (hereinafter: “the Day of the Tender” or “the Submission Date of the Applications”), at 09:30 (hereinafter: “Opening Time of the Subscription List”) and shall be closed on the same day at 16:30 (hereinafter: “Closing Time of the Subscription List”), provided that the Closing Time of the Subscription List shall not be before seven (7) hours have elapsed, at least five (5) of which are hours of trading, since the publication time of the Offering Memorandum. The Company shall be allowed to withdraw the offering up until the Closing Time of the Subscription List, without the investors having any claim and/or right in relation thereto. In the aforesaid instance, all of the orders tendered in connection with the offering shall be deemed voided.

 

2.8

Order submissions

 

2.8.1

Orders for the purchase of the Units must be submitted to the Company using the customary forms for this purpose, either directly through the Issue Coordinator, Israel Discount Bank Ltd., of [38 Yehuda Halevy St, Tel Aviv (hereinafter: “the Issue Coordinator”), or through banks or other TASE members (hereinafter: “the Authorized Order Recipients”), by no later than the Closing Time of the Subscription List. The Authorized Order Recipients shall be responsible and liable to the Company and to the Issue Coordinator for the payment of the full consideration that shall be due to the Company in respect of orders submitted through them that were fully or partially accepted.

 

2.8.2

Any order that shall be submitted to an Authorized Order Recipient on the Day of the Tender shall be deemed as submitted on that day if it shall be received by the Authorized Order Recipient by the Closing Time of the Subscription List, provided that the Authorized Order Recipient shall forward it to the Issue Coordinator and the Issue Coordinator shall receive it by one hour after the Closing Time of the Subscription List; i.e., by 17:30 on the Day of the Tender (hereinafter: “the Deadline for Submissions to the Coordinator”).

 

2.8.3

The Authorized Order Recipients shall forward the orders to the Issue Coordinator on the Day of the Tender by transmission of the applications to a digital safe or in sealed envelopes that shall remain sealed until the Deadline for Submissions to the Coordinator, and shall be inserted into a closed box, together with the orders that were submitted directly to the Issue Coordinator.

 

2.9

The tender proceedings, publication of the results and payment of the consideration

 

2.9.1

On the Day of the Tender, after the Deadline for Submissions to the Coordinator, the box shall be opened and the envelopes shall be opened, including the applications transmitted in a digital safe, in the presence of a representative of the Company, a representative of the Issue Coordinator and an accountant, who shall supervise the proper conduct of the tender proceedings.

 

2.9.2

By 10:00 a.m. on the morning of the first trading day after the Day of the Tender, the Issue Coordinator shall deliver notice to the subscribers, through the Authorized Order Recipients through which the orders were submitted, about the extent of the acceptance of their orders. The notice shall specify the interest rate determined in the tender, the quantity of Units that shall be allotted to the subscriber and the consideration that it must pay for them. Upon receipt of the notice, and by 12:30 on that same afternoon, the subscribers whose orders for Units were fully or partially accepted, must transfer the consideration that must be paid for the Units in their orders that were accepted, to the Issue Coordinator, through the Authorized Order Recipients.

 

2.9.3

On the first day of trading after the Day of the Tender, the Company shall announce the results of the tender in an Immediate Report to the Israel Securities Authority and to the TASE.

 

2.9.4

The Company deems the deposit of the consideration of the issue in the Special Account, as this term is defined hereunder in clause 2.11 of the Memorandum, as a transfer of the consideration to the Company, and the Company shall apply to the TASE to list the Debentures for trading on the basis of this.

 

2.10

Mode of determining the interest rate and the allotment to the subscribers

 

All of the Units for which purchase orders shall be accepted, shall be issued at a uniform interest rate per Unit (hereinafter: “the Uniform Interest Rate”), that will be determined in accordance with the tender results, and the method for allotting the Units shall be as follows:

 

2.10.1

If the inclusive number of Units included in the orders (including Units in purchase orders that were received from Classified Investors that engaged in an early commitment with the Company, as stated in clause 4 of the Memorandum) that shall be accepted is less than the inclusive number of Units being offered pursuant to the Offering Memorandum, then all of the orders shall be accepted in their entirety and, in such instance, the Uniform Interest Rate shall be the Maximum Interest Rate prescribed in the Offering Memorandum. The balance of the Units, for which orders shall not be accepted, shall not be issued.

 

2.10.2

If the inclusive number of Units included in the orders (including Units in purchase orders that were received from Classified Investors that engaged in an early commitment with the Company, as stated in clause 4 of the Memorandum) that shall be accepted is equal to or higher than the inclusive number of Units being offered to the public, then the Uniform Interest Rate shall be equal to the lowest interest rate at which orders were submitted for the purchase of all of the Units being offered pursuant to this Offering Memorandum (including orders submitted by Classified Investors) pursuant to the Offering Memorandum.

 

In such instance, the Units being offered shall be allotted as follows:

 

(a)

Orders quoting an interest rate higher than the Uniform Interest Rate – shall not be accepted;

 

(b)

Orders quoting an interest rate lower than the Uniform Interest Rate – shall be accepted in their entirety;

 

(c)

Orders (not including orders submitted by Classified Investors that engaged in an early commitment with the Company, as stated in clause 4 of the Memorandum) quoting an interest rate that equals the Uniform Interest Rate – shall be accepted on a pro rata basis, so that each subscriber shall receive, out of the total of the offered Units that shall remain for distribution after accepting orders quoting  an interest rate that is lower than the Uniform Interest Rate (and after accepting the orders of the Classified Investors that engaged in an early commitment with the Company, which shall order at the Uniform Interest Rate, as stated in clause 4 of the Memorandum), a portion that is equal to the ratio between the number of Units that it ordered in an order quoting the Uniform Interest Rate and the inclusive number of Units included in all orders submitted to the Company that quoted the Uniform Interest Rate  (after deducting the Units of the Classified Investors that engaged in an early commitment with the Company, as stated in clause 4 of the Memorandum);

 

(d)

The allotment to Classified Investors shall be done as specified in clause 4 of the Memorandum.

 

2.10.3

If an allotment as stated above in clause 2.10.2 shall not lead to the fulfillment of the minimum dispersion requirements of the Offered Debentures, as stated in the clause 13.3 of the Shelf Offering Memorandum, then the allotment priority to the Classified Investors shall be cancelled, and the offered Units shall be allotted as follows:

 

(a)

Orders quoting an interest rate higher than the Uniform Interest Rate – shall not be accepted;

 

(b)

Orders quoting an interest rate lower than the Uniform Interest Rate – shall be accepted fully;

 

(c)

Orders (including orders submitted by Classified Investors that engaged in an early commitment with the Company, as stated in clause 4 of the Memorandum) quoting an interest rate that is equal to the Uniform Interest Rate – shall be accepted on a pro rata basis, so that each subscriber shall receive, out of the total of the offered Units that shall remain for distribution after accepting orders quoting a lower interest rate than the Uniform Interest Rate, a portion that is equal to the ratio between the number of Units that it ordered in an order in which it quoted the Uniform Interest Rate and the total number of Units included in all of the Orders, which were submitted to the Company in which the Uniform Interest Rate was quoted (including Units for which the Classified Investors’ commitments to purchase them were received as an early commitment with the Company, as stated in clause 4 of the Memorandum);

 

2.10.4

If an allotment as stated above in clause 2.10.3 shall not lead to the fulfillment of the minimum dispersion requirement of the Debentures (Series G) as stated in clause 13.3 herein, then the offered Units shall be allotted as follows:

 

(a)

Orders quoting an interest rate higher than the Uniform Interest Rate – shall not be accepted;

 

(b)

Orders (including orders submitted by Classified Investors that engaged in an early commitment with the Company, as stated in clause 4 of the Memorandum) quoting the Uniform Interest Rate and/or a lower interest rate – shall be accepted on a pro rata basis, so that each subscriber shall receive, out of the total of the offered Units, a portion that is equal to the ratio between the number of Units that it ordered quoting the Uniform Interest Rate and/or a lower interest rate, and the total of the Units at the Uniform Interest Rate and/or a lower interest rate, which were submitted to the Company (including Units for which the Classified Investors’ commitments to purchase them were received, as stated in clause 4 of the Memorandum);

 

2.10.5

If an allotment as stated above in clause 2.10.4 shall not lead to the fulfillment of the minimum dispersion requirement of the Debentures (Series G), as stated in clause 13.3 of the Shelf Offering Memorandum, then a re-allotment shall be executed for the purpose of determining a new Uniform Interest Rate per Unit, which shall exceed the Maximum Interest Rate, and which shall be the lowest interest rate at which it shall be possible to allot the securities included in the Units in a manner that shall fulfill the minimum dispersion requirement as stated in clause 13.3 of the Shelf Offering Memorandum, provided that Units shall not be allotted to a subscriber at a number higher than the number it ordered or at an interest rate lower than the price it quoted in its order (hereinafter: “the New Uniform Interest Rate per Unit”).

 

If the New Interest Rate per Unit as stated in this clause is determined, then the allotment shall be carried out according to that stated above in clause 2.10.4, except that, instead of “the Uniform Interest Rate per Unit,” it shall be deemed as if it states “the New Uniform Interest Rate per Unit.”

 

2.10.6

If an allotment as stated above in clause 2.10.5 shall not lead to the fulfillment of the minimum dispersion requirement of the Debentures (Series G), as stated in clause 13.3 of the Shelf Offering Memorandum, which are being offered pursuant to this Shelf Offering Memorandum, then the issue shall be cancelled, the Offered Securities shall not be allotted, and no monies shall be collected from the applicants in respect thereof.

 

2.10.7

If fractional Units shall be created as a result of the allotment of the Units according to the response to the tender as stated above, they shall be rounded, to the extent possible, to the closest whole Unit. Surplus Units that might remain as a result of rounding as stated shall be purchased by the Issue Coordinator at the price per Unit specified in the Offering Memorandum.

 

2.10.8

Each subscriber shall be deemed as if it committed in its order to purchase all of the Units that shall be allotted to it as a result of a partial or full acceptance of its order, according to the rules specified above in this clause 2.

 

2.11

Special account

 

2.11.1

Shortly before the Day of the Tender, the Issue Coordinator shall open a special income-bearing trust account under the Company’s name in a banking corporation (hereinafter: “the Special Account”) and shall disclose the details of the Special Account to the Authorized Order Recipients. The Special Account shall be used for monies that shall be received from the subscribers.

 

2.11.2

The Special Account shall be managed exclusively by the Issue Coordinator for and on behalf of the Company pursuant to the provisions of section 28 of the Securities Law. The monies that shall be paid in respect of the orders that were fully or partially accepted by the Company shall be deposited in the Special Account. The Issue Coordinator shall invest the monies that shall accumulate in the Special Account in liquid, unlinked deposits bearing interest on a daily basis, to the extent that this shall be possible.

 

2.11.3

By no later than 12:00 p.m. on the second trading day after the Day of the Tender, the Issue Coordinator shall transfer the balance of the monies that shall remain in the Special Account to the Company, including the profits that accumulated in respect thereof, and this, against the transfer of certificates in respect of the Debentures Mizrahi Tefahot Nominee Company Ltd. (hereinafter: “the Nominee Company”) and crediting of the TASE member pursuant to the instructions of the Issue Coordinator.

 

In the event of cancellation of the tender, the Debentures (Series G) being offered in the tender shall not be  listed for trading on the TASE, and no monies shall be collected from the investors in connection with those Debentures.

 

3.	Additional allotment

 

The Company shall not execute an additional allotment, as this term is defined in the Mode of Offering Regulations, pursuant to this Shelf Offering Memorandum.

 

4.	Classified Investors

 

Out of the Units being offered to the public as stated in this Shelf Offering Memorandum, early commitments for the purchase of 225,000 Units were given by Classified Investors,³ as defined in Regulation 1 of the Mode of Offering Regulations (hereinafter: “the Classified Investors”), whereby, the Classified Investors shall submit orders in the tender for the purchase of Units constituting approximately 82% of the total Units being offered pursuant to the Shelf Offering Memorandum, as specified hereunder in this clause 4.

 

The early commitments from Classified Investors were received according to the principles prescribed in the Mode of Offering Regulations.

 

In this clause 4, “oversubscription” is the ratio between the quantity of offered Units for which orders were submitted at the Uniform Interest Rate, and the quantity remaining for distribution (as defined below), provided that it exceeds one;

 

“The quantity remaining for distribution” is the quantity of Units that were offered in the tender at the interest rate, in accordance with the Shelf Offering Memorandum, after deducting from it that quantity of securities for which orders were submitted at an interest rate that is lower than the Uniform Interest Rate.

 

Pursuant to the Mode of Offering Regulations, in the event of oversubscription, the allotment to Classified Investors shall be as follows:

 

(a)

if the oversubscription was up to five times higher than the quantity of Units offered to the public, then each Classified Investor shall be allotted 100% of the quantity that it committed to purchase;

 

(b)

if the oversubscription was more than five times higher than the quantity of Units offered to the public, then each Classified Investor shall be allotted 50% of the quantity that it committed to purchase.

 

If the quantity of the Debentures (Series G) remaining for distribution is insufficient for an allotment as stated above, then the quantity remaining for distribution shall be allotted to the Classified Investors according to the pro rata of each early commitment out of the total early commitments submitted at the same interest rate.

 

The allotment to Classified Investors shall be at the Uniform Interest Rate.

 

Orders from the Classified Investors shall be submitted within the scope of the tender and shall be deemed orders submitted by the public for the purpose of determining the interest rate, and this, subject to that stated above with regard to the allotment of the Debentures (Series G) in the event of an oversubscription. It is clarified that, if there is no oversubscription, then the orders from the Classified Investors within the scope of the tender shall be deemed orders submitted by the public for the purpose of allotting the Debentures (Series G) to the subscribers.

 

Early commitments received from Classified Investors:

 

Each of the Classified Investors specified hereunder committed, within the scope of an early commitment, to submit orders to purchase Units at a quantity of not less than detailed herein, and at the interest rate that shall not exceed the rate specified hereunder:

 

No.	Name of the Classified Investor	Quantity of units	Interest rate
1	Arbitrage Global, LP. (*)	7,500	3.89%
2	Arbitrage Global, LP. (*)	5,504	4.00%
3	Oporto Securities Distribution Ltd.	2,000	3.99%
4	Orcam Strategies Ltd.	2,000	3.90%
5	Orcam Strategies Ltd.	2,203	4.00%
6	Alumot Trust Fund Management Ltd.	550	4.00%
7	Altris Finance Ltd.	3,800	3.89%
8	Ametrine Limited Partership(*)	6,500	3.90%
9	Excellance Nessuah Investment Management Ltd. (**)	12,500	3.99%
10	Best Invest-Yalin Lapidot Investment Portfolio Management Ltd.	3,000	3.94%

 

11	Barak Capital Investments 2006 Ltd. (*)	800	3.90%
12	Harel Insurance Company Ltd.- Nostro	20,000	3.99%
13	Vardan Investment House Ltd.	7,784	3.70%
14	Yalin-Lapidot Provident Fund Management	8,000	3.94%
15	Clal Insurance Company  Ltd.-Nostro	7,031	3.80%
16	Clal Insurance Company-for Institutional Investors it controls	49,219	3.82%
17	Mahog Ltd.	3,000	3.94%
18	Meitav-Dash-Fund Management Ltd. (**)	11,653	3.70%
19	Meitav-Dash-Fund Management Ltd. (**)	1,417	3.98%
20	Meitav-Dash-Fund Management Ltd.-Best Invest(**)	800	3.98%
21	Meitav-Dash-Fund Management Ltd.-for Institutional Funds(**)	17,680	3.79%
22	Menora Mivtahim Holdings Ltd. (**)	2,000	3.92%
23	Menora Mivtahim Insurance Ltd. (**)	14,000	3.92%
24	Mifal Hapayis	1,500	2.10%
25	Inbar Derivatives Ltd. (*)	3,500	3.92%
26	Inbar Derivatives Ltd. (*)	7,000	3.97%
27	Fidelity Venture Capital Ltd.	1,555	3.77%
28	Proxima Investment Management Ltd. (*)	2,300	3.70%

No.

Name of the Classified Investor

Quantity of units

Interest rate

29	R.I.L Spirit Management and Investments Ltd.	1,700	3.89%
30	R.I.L Spirit Management and Investments Ltd.	1,600	3.94%
31	R.I.L Spirit Management and Investments Ltd.	2,900	3.97%
32	Shomra Insurance Company Ltd. (**)	4,000	3.92%
33	Partnership- Traded Corporate Bonds-Haphoenix Amitim(**)	5,504	4.00%
34	Shobolet Provident Fund Management Company Ltd.	4,500	3.79%
Total		225,000

 

*A Classified Investor that is a distributor in the issuance or is affiliated with the distributor in the issuance.

 

** An interested party in the Company or entities affiliated with an interested party in the Company.

 

The total Units ordered by said investors – 33,104 Units – approximately 14.71%.

 

The Classified Investors shall be entitled to an early commitment fee at the rate of 0.6% of the inclusive immediate consideration in respect of the Units for which the Classified Investors committed to submit orders.

 

On the Day of the Tender, a Classified Investor shall be permitted to decrease the interest rate compared to the interest rate that it had quoted in its aforesaid early commitment (at increments of 0.01%), by delivering written notice to the Issue Coordinator, which must be received by the Issue Coordinator by 16:30.

 

The consideration that shall be paid by the Classified Investors shall be transferred to the Issue Coordinator through the TASE members, on the first trading day after the Day of the Tender, by 12:30 p.m., and shall be deposited by it in the Special Account, as defined in clause 2.11 of the Memorandum.

 

It is clarified that the Classified Investors shall be able to order Units at a quantity that exceeds that specified in their early commitments, however, any extra Units that shall be ordered shall not be deemed orders from Classified Investors for the purposes of this Shelf Offering Memorandum, but rather, for all intents and purposes, as orders submitted by the public.

 

5.	Additional terms of the Debentures (Series G)

 

5.1

The payments on account of the principal and the interest of the Debentures (Series G) shall be paid to persons whose names shall be registered in the register of the Debentures (Series G) on June 19 in respect of payments paid on June 25 that preceded the payment date of that payment (with respect to the payments of the interest during each of the years 2019 – 2027 and with respect to the payments of the principal during each of the years 2022-2027)  ("the Record Date of the Debentures (Series G)"), except for the last payment of the interest and the principal, which shall be paid on June 25, 2027, in respect of which the following shall apply: the final payment of the interest and payment of the principal shall be paid to persons whose names shall be registered in the register on the date of payment of the principal and the last interest payment and shall be made against delivery of the Debentures (Series G) certificates to the Company.

 

5.2

It is hereby clarified that any party that is not registered in the register for the Debentures (Series G) on the Record Date of the Debentures (Series G), shall not be entitled to an interest payment in respect of the interest period that began before that date.

 

5.3

In any instance whereby the payment date of principal and/or interest is due on a day that is not a business day, the payment date shall be postponed to the next business day without an additional payment, and the record date for the purpose of determining interest eligibility shall not change as a result.

 

5.4

For further details regarding principal and interest payments of the Debentures (Series G), see clause 4 of the Terms and Conditions Overleaf of the Deed of Trust.

 

5.5

The Debentures (Series G) being offered under this Shelf Offering Memorandum are not secured by any collateral whatsoever.

 

5.6

For details regarding arrears interest, see clause 8 of the Terms and Conditions Overleaf of the Deed of Trust.

 

6.	Immediate repayment and/or realization of collateral

 

The Trustee and the meeting of the holders of the Debentures (Series G) are entitled to demand the immediate repayment of the outstanding balance of the Debentures and/or to realize collateral provided (insofar as provided) to secure the Company's obligations to the Debenture holders pursuant to the Debentures, in the cases described in clause 11 of the Deed of Trust.

 

7.	Early Redemption

 

7.1

Should the TASE decide to delist the Debentures (Series G) that are in circulation because the value of the Debenture series (Series G) held by the public is less than the sum specified in the TASE regulations and directives regarding delisting of debentures, the Company shall carry out an early redemption of the Debentures. For details regarding early redemption at the initiative of the TASE, see clause 10.1 of the Deed of Trust.

 

7.2

In addition, the Company may, at its sole discretion, call the Debentures (Series G) for early redemption as of 60 days following the date of listing of the Debentures (Series G) for trading on the TASE. For details regarding early redemption at the Company's initiative, see clause 10.2 of the Deed of Trust.

 

For details regarding the Company's liabilities to the Trustee and the holders of Debentures (Series G) in connection with financial covenants and changes in the interest rate due to failure to comply with financial covenants, see clause 6 of the Deed of Trust and clause 2 of Appendix A to the Deed of Trust.

 

8.	The Trustee for the Debentures

 

8.1

The trustee for the Debentures (Series G) is Hermetic Trust (1975) Ltd., with whom the Company engaged in a Deed of Trust for the Debentures (Series G) dated January 2, 2019 (hereinafter: The "Deed of Trust")4. The full text of the Deed of Trust is attached as Appendix A to the Shelf Offering Memorandum. It is clarified that, in the event of the cancellation of the issue of the series of Debentures (Series G) for any reason whatsoever, the Deed of Trust shall be null and void.

 

8.2

The Trustee has no material interest in the Company and the Company has no material interest in the Trustee.

 

9.	Discounting

 

9.1

The Debentures (Series G) being issued pursuant to this Shelf Offering Memorandum are being offered for the first time at a minimum price equal to their par value and therefore shall be issued without a discount for tax purposes.

 

9.2

In the event of a series expansion of Series G, the Company shall take action with regard to the discount rate, in conformity with that stated in clause 2.4 of the Deed of Trust.

 

10.	Tax implications

 

10.1

Capital gain from a sale of Debentures

 

Pursuant to section 91 of the Israel Income Tax Ordinance (New Version), 5721 – 1961 (hereinafter in this section: “the Ordinance”), a real capital gain from a sale of offered debentures that are not linked to the CPI⁵ by an individual resident of Israel, whose income from the sale of debentures does not constitute income from a "business" or from an "occupation" and who did not claim a deduction of financing expenses, shall be taxable at a rate not exceeding 15% or 20%,  With respect to a “material shareholder” of the Company – i.e., a holder, whether directly or indirectly, whether alone or jointly with another party,⁶ of at least 10% of one or more types of means of control⁷ over the Company – the entire capital gain on the date of sale of the debentures or on any date during the 12 months preceding the sale as stated (hereinafter: "Material Shareholder") shall be deemed a real capital gain.

 

10.2

In addition, for an individual who claimed real interest expenses and linkage differentials in relation to the Debentures, the capital gain from the sale of the Debentures shall be taxed at the rate of 30% until the provisions and conditions for deducting real interest expenses are prescribed according to sections 101A (a) (9) and 101A (b) of the Ordinance.

 

10.3

The reduced tax rate as aforesaid shall not apply to an individual whose income from the sale of the Debentures is considered to be income from a "business" or an "occupation," in accordance with the provisions of section 2 (1) of the Ordinance. In this case, the individual will be charged a marginal tax rate in accordance with the provisions of section 121 of the Ordinance.

 

10.4

In addition to all that stated above, an individual's income shall be subject to a surtax of 3% on that part of the taxable income for 2019, in excess of NIS 640,000.

 

10.5

A body of persons shall be taxed for a real capital gain from a sale of Debentures at the corporate tax rate prescribed in section 126(a) of the Ordinance (25%) (as of 2018 and thereafter – 23%).

 

10.6

Exempt mutual funds and provident funds and tax-exempt bodies pursuant to section 9(2) of the Ordinance are exempt from tax in respect of capital gains from a sale of debentures as stated, subject to the conditions prescribed in the said section. The tax rate applicable to a taxable mutual fund’s income from a sale of debentures shall be the tax rate that applies to the income of an individual when the income does not constitute income from a “business” or a “profession,” unless otherwise expressly stated. If no special tax rate is defined for the income, the income shall be taxed at the maximum tax rate prescribed in section 121 of the Ordinance.

 

10.7

As a rule, a foreign resident (individual or company), as defined in the Ordinance, is exempt from capital gains tax in a sale of debentures traded on the stock exchange in Israel, if the capital gain is not in his permanent enterprise in Israel, and is in accordance with the conditions and restrictions specified in section 97(B2) of the Ordinance. That stated above shall not apply to a foreign company if residents of Israel are controlling shareholders8 therein or are beneficiaries of or are entitled to 25% or more of the income or profits of the group of foreign resident persons, whether directly or indirectly, as stated in section 68A of the Ordinance. In the event that such exemption does not apply, exemption provisions of the tax treaty (if any) may apply between Israel and the foreign resident's country of domicile, subject to the furnishing of a suitable confirmation from the Tax Authority in advance.

 

10.8

With respect to the withholding tax from the real capital gain on the sale of the offered Debentures, in accordance with the provisions of the Income Tax Regulations (Deduction from Consideration, Payment or Capital Gain on the Sale of a Security, Sale of a Mutual Fund Unit or a Future Transaction), 5763 – 2002 ("Capital Gains Deduction Regulations") a taxpayer (as this term is defined in the Capital Gains Deduction Regulations) paying a consideration to a seller who is an individual during a sale of unlinked debentures must deduct tax at the rate of 15% of the capital gain, and, when the seller is a body of persons, at the corporate tax rate (as of 2018 and thereafter – 23% ) from the real capital gain, this, subject to certificates of exemption (or a reduced rate) from withholding tax, and subject to offsetting of losses that the taxpayer withholding tax at source is permitted to execute.

 

10.9

In addition, tax shall not be deducted at source for provident funds, mutual funds and other bodies exempt from withholding tax according to the law, after they furnished appropriate approvals in advance.

 

10.10

If, at the time of the sale, the full withholding tax is not deducted from the real capital gain, the provisions of section 91 (d) of the Ordinance and the provisions by virtue thereof shall apply to reporting and payment of an advance payment in respect of such sale.

 

10.11

The provisions of the Capital Gains Deduction Regulations shall not apply to a taxpayer that is a financial institution that is paying a consideration or other payment to a seller who is a foreign resident for an exempt capital gain, if the selling foreign resident submits a declaration on Form 2402 to the financial institution within 14 days of the account opening date and once every three years, if it or its representative was in Israel, regarding its being a foreign resident and its entitlement to an exemption.

 

10.12

Insofar as the Debentures being offered pursuant to the Prospectus are delisted from trading on the TASE, the rate of the withholding tax to be deducted at the time of their sale (after the delisting) shall be 30% of the consideration, as long as a confirmation from the tax assessor specifying another withholding tax rate (including exemption from withholding tax) has not been issued.

 

10.13

Pursuant to section 92 of the Ordinance, losses during the tax year originating from the sale of the Debentures offered during the tax year, which, had they been capital gains, they would have been taxable by their recipient, shall be offset against a real capital gain and land appreciation deriving from the sale of any asset in Israel or abroad (excluding an inflationary sum due that shall be offset at a ratio of 1 to 3.5).

 

10.14

A capital loss as aforesaid shall be offsettable during the tax year in which it was incurred also against income from interest and dividends that were paid in respect of the same security or in respect of other securities during that same tax year, provided that the applicable tax rate on the interest or dividends from the other aforesaid security does not exceed the corporate tax rate prescribed in section 126 (A) of the Ordinance (as of 2018 and thereafter – 23%) for a company and did not exceed the tax rate prescribed in sections 125B (1) and 125C (b) of the Ordinance regarding an individual (tax rate of 25%). Losses shall be offset by way of offsetting the capital loss against capital gains or income from interest or dividends as aforesaid.

 

10.15

A loss from the sale of debentures that is not offsettable, in whole or in part, during the tax year as stated, shall be offsettable against a real capital gain and land appreciation only, as stated in section 92 (b) of the Ordinance in the following tax years, one after another, after the year in which the loss was incurred, as long as a report was filed with the tax assessor for the tax year during which the loss was incurred.

 

10.16

Pursuant to the Capital Gains Deduction Regulations, as part of the calculation of the capital gain for purposes of withholding tax from the sale of securities and futures transactions, the taxpayer (as this term is defined in the Capital Gains Deduction Regulations) shall offset a capital loss deriving from a sale of securities and futures transactions, in accordance with the provisions of section 92 of the Ordinance, as long as the following apply: the loss derived from the sale of securities that were under the taxpayer’s management and provided that the gain was created during the same tax year in which the loss was incurred, whether before or after the date the loss was incurred.

 

10.17

The tax rate that shall apply to interest income from Debentures

 

Pursuant to section 125C (c) of the Ordinance, an individual shall be taxable at a tax rate of 15% on interest or discount fees originating in a debenture that is not linked to the CPI, or that is partially linked to the rate of the rise in the CPI, in whole or in part, or is not linked to the CPI until maturity.

 

10.18

Pursuant to section 125C (d) of the Ordinance, the reduced tax rates as aforesaid shall not apply if, inter alia, one of the following conditions is fulfilled: (1) the interest is income from a "business" or an "occupation" under section 2 (1) of the Ordinance or is recorded in the accounting books of the individual or must be registered as aforesaid; (2) the individual claimed deduction of interest expenses and linkage differentials in respect of the Debentures on which the interest is being paid; (3) the individual is a Material Shareholder – as defined in section 88 of the Ordinance – in the company paying the interest; (4) the individual is an employee of a company paying the interest or provides services to it or sells products to it or has other special relations with the company, unless it has been proven, to the satisfaction of the tax assessor, that the interest rate was determined in good faith and without being influenced by the existence of such relations between the individual and the group of people; (5) another condition has been stipulated by the Minister of Finance with the approval of the Finance Committee of the Knesset. In these cases, marginal tax shall apply in accordance with the provisions of section 121 of the Ordinance. In addition, a surtax of 3% shall apply to that part of the individual's taxable income that exceeds NIS 640,000 in 2019.

 

10.19

The tax rate applicable to interest income or discount fees of a body of persons that is a resident of Israel, but is not a body of persons to which the provisions of section 9 (2) of the Ordinance apply when determining its income, except for the purpose of section 3(h) of the Ordinance regarding accrued interest originating in debentures traded on the TASE, is the corporate tax rate in accordance with section 126 (a) of the Ordinance (as of 2018 and thereafter – 23%).

 

10.20

Exempt mutual funds and provident funds and tax-exempt bodies pursuant to section 9(2) of the Ordinance are exempt from tax in respect of such interest income or discount fees, subject to the provisions of section 3 (h) of the Ordinance regarding interest or discount fees accrued during the period of the holding by another party.

 

10.21

The tax rate applicable to the income of an individual whose income does not constitute income from a “business” or from an “occupation” shall apply to the gains or income of a taxable mutual fund from interest or from discount fees, unless otherwise determined. If no special tax rate is set for the income, the income shall be taxed at the maximum rate prescribed in section 121 of the Ordinance.

 

10.22

Pursuant to the provisions of section 9 (15d) of the Ordinance, a foreign resident9 is exempt from tax on income from interest, discount fees or linkage differentials on account of a debenture traded on a stock exchange in Israel, which was issued by a body of persons that is a resident of Israel, provided that the income is not in a permanent enterprise of the foreign resident in Israel. Subject to the provisions of the treaties for the avoidance of double taxation that were signed between the State of Israel and the foreign resident's country of domicile, and subject to the approval of the Tax Authority, the exemption shall not apply in the following cases:

 

(a)

the foreign resident is a Material Shareholder in the issuer body of persons, or

 

(b)

the foreign resident is a “relative,” as defined in paragraph (3) of the definition of “relative” in section 88 of the Ordinance, of an issuer body of persons, or

 

(c)

the foreign resident is an employee, a provider of services or a seller of products to an issuer body of persons or has special relations with it (unless it has been proven that the interest rate or discount fees were determined in good faith and were not influenced by the existence of special relations).

 

It should be noted that the aforesaid exemption shall not apply to a foreign resident company held by residents of Israel at a ratio exceeding 25%, in accordance with the provisions of section 68A of the Ordinance.

 

10.23

In the event that the aforesaid exemption does not apply, the tax rate applicable to interest income of foreign residents (an individual and a body of persons) originating from the Debentures shall be charged in accordance with the provisions of the Ordinance and the regulations enacted by virtue thereof, as specified above, or in accordance with the provisions of treaties for the avoidance of double taxation that were signed between the State of Israel and the country of domicile of the foreign resident and subject to the receipt of an appropriate confirmation in advance from the Tax Authority.

 

10.24

Pursuant to Regulation 5(a) of the Israel Income Tax Regulations (Deduction from Interest, Dividend and Particular Earned Income), 5766 – 2005 ("Deduction from Interest and Dividend Regulations"), the withholding tax rate on interest (as defined in the Deduction from Interest and Dividend Regulations)10 payable on debentures that are not linked to the CPI, with respect to an individual who is not a Material Shareholder of the company that is paying the interest, is 15%. On the other hand, pursuant to Regulation 6 of the Deduction from Interest and Dividend Regulations, with respect to an individual who is a Material Shareholder in a company paying the interest, or an individual who is working at a company paying the interest or who provides services to it or sells products to it, the tax rate shall be at the maximum marginal tax rate in accordance with section 121 of the Ordinance.  With respect to a body of persons (an Israeli resident and a foreign resident), tax shall be deducted at the corporate tax rate prescribed in section 126 (A) of the Ordinance (as of 2018 and thereafter – 23%).

 

10.25

Notwithstanding that stated above, the withholding tax rate for a foreign resident (an individual and a body of persons) may be reduced in accordance with the treaties for the prevention of double taxation that were signed between the State of Israel and the foreign resident's country of domicile, and subject to prior presentation of a valid confirmation from the Tax Authority.

 

It should be noted that no withholding tax shall be deducted from interest payable to a foreign resident to whom the provisions of section 9 (15d) of the Ordinance apply.

 

10.26

Interest payments to provident funds, mutual funds and other entities listed in the Addendum to the Deduction from Interest and Dividend Regulations are exempt from withholding tax, subject to prior presentation of appropriate confirmations.

 

That stated above is subject to certificates of exemption (or reduced rates) from withholding tax and is subject to offsetting of losses that the taxpayer withholding tax at source is permitted to execute.

 

10.27

Method of calculating the discount for purposes of withholding tax in respect of debentures11

 

In accordance with the provisions of section 2 (4) of the Ordinance and section 125C of the Ordinance, a discount¹² in respect of a debenture is treated as taxable interest and subject to withholding tax as stated above. The withholding tax in respect of the discount fee¹² shall be deducted on the redemption dates of the debenture principal.

 

As a rule, in the absence of any other directive from the Tax Authority, the discount rate shall be determined according to the difference between the liability value of the debentures and the consideration attributed to the debenture insofar as this difference is positive. To the extent that they shall be issued in units of debentures only, the discount rate shall be specified in the offering memorandum or in the report of the results of the issue, as the case may be.

 

Withholding tax from interest (including discount fees¹²) as aforesaid and transfer thereof to the Tax Authority shall be carried out by TASE members and not by the Company. The Company shall transfer to the TASE members (through the TASE) the gross sum of the interest as well as the information it possesses in relation to the holders and the security by virtue of which such interest is being paid.

 

Regulation 4 of the Income Tax Regulations (Calculation of Capital Gain on the Sale of a Security Traded on a Stock Exchange, a State Loan or a Mutual Fund Unit), 5763 – 2002, prescribes that when redeeming debentures traded on the TASE in respect whereof discount fees are also paid, the consideration plus the discount fees shall be deemed as the consideration of the redemption, if all of the following are fulfilled: (1) the capital gain on the sale of the debenture is not exempt from tax; (2) a capital loss was incurred on the redemption date; and (3) the redemption is not in the possession of the controlling shareholder or a holder of the debenture from the date it was allotted or issued, all up to the height of the capital loss. The discount fees that are considered as consideration in accordance with these provisions shall not be considered income under section 2 (4) of the Ordinance.

 

The TASE members shall withhold the tax payments from the interest payments paid by them to the Debenture holders that they are obligated to withhold, except for entities exempt from withholding tax as stated in accordance with the law. On the repayment dates of the principal of the Debentures, the TASE members shall withhold tax in respect of the discount fees, if any, as detailed above and below.

 

10.28

Issuance of additional debentures as part of a series expansion

 

In the event that the Company shall issue additional debentures in the series in the future, within the scope of a series expansion at a discount rate that is different from the discount rate for that series (including without a discount, if relevant), the Company shall apply to the Tax Authority, prior to expanding the series, in order to obtain its approval that, on the matter of deducting withholding tax from the discount fees in respect of the debentures, a uniform discount rate shall be set for the debentures according to a formula that weights the various discount rates (if any) in that same series (hereinafter in this section: “the Weighted Discount Rate”). In the event that such approval is received, then, prior to expanding the series, the Company shall calculate the Weighted Discount Rate in respect of all of the debentures in accordance with that approval, and, prior to the expansion of the series, the Company shall file an Immediate Report announcing the Weighted Discount Rate for the entire series and shall deduct tax on the redemption dates of the debentures of the said series according to the said Weighted Discount Rate and in accordance with the provisions of the law.

 

In such instance, all other provisions of the law relating to taxation of discount fees shall apply. If the aforesaid approval is not received from the Tax Authority, the Company shall file an Immediate Report prior to the expansion of the series, announcing that such approval was not received, and that the uniform discount rate shall be the highest discount rate created in respect of the series and all other statutory provisions relating to taxation of discount fees shall apply. The TASE members shall withhold tax upon redemption of the series, in accordance with the rate to be reported as aforesaid.

 

Therefore, there may be instances when the Company shall withhold tax in respect of discount fees at a rate higher than the discount fees determined for a party holding the debentures from the series prior to the series expansion (hereinafter: “the Excess Discount Fees“), regardless of whether or not approval was received from the Tax Authority to set a uniform discount rate for that series. A taxpayer who held the debentures from the said series prior to the series expansion and until the redemption of the debentures held by him, shall be entitled to submit a report to the Tax Authority and to receive a tax rebate at the height of the tax deducted from the Excess Discount Fees, to the extent that he is entitled to such rebate by law.

As is customary when making decisions about financial investments, the tax implications relating to the investment in the securities offered under this Shelf Offering Memorandum should be considered. It is clarified that that stated above reflects the provisions of law described therein as are in effect on the date of this Shelf Offering Memorandum, and they might be amended and lead to different outcomes. It is also emphasized that that stated above does not purport to constitute an agreed interpretation of the provisions of the law referred to in this Shelf Offering Memorandum; therefore, the general description above does not constitute a substitute for individual advice by experts, taking into account the unique circumstances of each investor. It is recommended that anyone wishing to purchase securities pursuant to this Shelf Offering Memorandum should seek professional advice in order to clarify the tax results that might apply to him, considering his unique circumstances.

 

11.	Refraining from arrangements

 

11.1

The Company and the directors, by signing the Shelf Offering Memorandum, are undertaking to refrain from making any arrangements that are not specified in the Shelf Prospectus or in a Shelf Offering Memorandum in relation to the offering of the Offered Securities that shall be offered pursuant to the Shelf Offering Memorandum, the distribution and dispersion thereof among the public, and are undertaking to refrain from granting a right to purchasers of the Offered Securities that shall be offered pursuant to a Shelf Offering Memorandum to sell the Offered Securities that they purchased, and all, beyond that specified in the Shelf Prospectus or in the Shelf Offering Memorandum.

 

11.2

The Company and the directors, by signing the Shelf Offering Memorandum, are undertaking to notify the Israel Securities Authority about any arrangement known to them with a third party in relation to the registration and offering of the Offered Securities that shall be offered pursuant to the Shelf Offering Memorandum, the distribution and dispersion thereof among the public, that contradicts the undertaking as stated above in section 11.1.

 

11.3

The Company and the directors, by signing the Shelf Offering Memorandum, are undertaking to refrain from engaging with any third party in relation to the registration and offering of the Offered Securities that shall be offered pursuant to a Shelf Offering Memorandum, the distribution and dispersion thereof among the public, who, to the best of their knowledge, made arrangements contrary to that stated above in section 11.1.

 

12.	Rating of the Debentures

 

12.1

On December 9, 2018, S & P Global Ratings Maalot Ltd. (hereinafter: "Maalot") announced a rating of ilA+ for the Debentures (Series G), at the volume of up to NIS 200,000,000 million par value, which shall be issued by the Company, by the issuance of a new series of Debentures (Series G). On January 2, 2019 Maalot announced a rating of ilA+ for the Debentures (Series G), at the volume of up to NIS 225,000,000 million par value, which shall be issued by the Company, by the issuance of a new series of Debentures (Series G). For details, see the Company’s Immediate Report of December 9, 2018, reference no.: 2018-15-112903, and Immediate Report of January 2, 2019, reference no.: 2019-02-000817, the contents of which are presented herewith by way of referral.

 

12.2

Maalot's consent to attaching the rating report to the Shelf Offering Memorandum, including by way of referral, is attached as Appendix B to the Shelf Offering Memorandum.

 

12.3

For details regarding the adjustment of the interest rate of the Debentures (Series G) as a result of a change in the rating and/or non-compliance with the financial covenants, see Appendix A to the Deed of Trust.

 

13.	Permits and confirmations

 

13.1

The TASE has issued its approval to list the Debentures (Series G) being offered to the public pursuant to the Shelf Offering Memorandum.

 

13.2

The TASE’s said approval is not to be construed as a confirmation of the details presented in the Shelf Offering Memorandum, or of the reliability or completeness thereof, and it should not be construed as expressing any opinion about the Company or about the quality of the securities being offered in the Shelf Offering Memorandum or about the price at which they are being offered.

 

 

For the purposes of this clause, “holder” means – one holder, when the value of its holdings exceeds the minimum holding value required pursuant to this clause, or a holder together with others, when the value of their joint holdings exceeds the minimum holding value for a holder as stated.

 

13.3.3

The Debentures (Series G) have been assigned a rating of ilA+ by Maalot. Therefore, the Company is exempt from the equity requirements specified in the TASE regulations.

 

13.4

If it shall become evident that the TASE’s preconditions for listing for trading on the TASE as stated above in clause 13.3 have not been fulfilled in relation to the Offered Securities, then the issue shall be cancelled, and the securities offered shall not be allotted and shall not be listed for trading on the TASE and no monies shall be collected from the subscribers.

 

The Company shall be allowed to issue the Debentures (Series G), the issue of which has been cancelled as stated, under subsequent shelf offering memoranda, insofar as published, and this, subject to the provisions of any law and the TASE regulations.

 

13.5

Trading of the securities being offered pursuant to This Offering Memorandum shall commence shortly after they are listed for trading.

 

14.	Payment of a fee

 

Pursuant to the provisions of Regulation 4.A of the Israel Securities Regulations (Application Fee for the Granting of a Permit to Publish a Prospectus), 5755 – 1995, the Company shall pay the Israel Securities Authority the additional fee for the securities being offered within the scope of the Shelf Offering Memorandum.

 

15.	Proceeds of the issue

 

15.1

The immediate proceeds that the Company anticipates from the issue pursuant to the Shelf Offering Memorandum, assuming that all of the Debentures being offered in the Shelf Offering Memorandum shall be purchased, after deducting the expenses involved in the issue pursuant to the Shelf Offering Memorandum, shall be as specified hereunder:

 

The anticipated immediate proceeds (gross)		~ NIS 225 million
Less early commitment fees and distribution fees		~ NIS 1.6 million
Less other expenses (estimated)		~ NIS 1.0 million
Total anticipated proceeds, (net)		~ NIS 222.4 million

 

15.2

This Shelf Offering Memorandum is not secured by underwriting.

 

15.3

Regarding the designated use of the proceeds of the issue, see section 18.5 hereunder.

 

15.4

Until the issue proceeds are used, the Company shall deposit and invest these monies as it shall deem fit, provided that every such investment shall be in solid channels.

 

In this section, “solid channels” – including, but not limited to, an interest-bearing cash deposit, deposit in foreign currency, bonds assigned a rating of at least “(AA),” etc. For the purpose of that stated above, an investment in shares or in ETFs, when their underlying asset is shares or share indices or Maof options, or a purchasing or writing of derivative positions, shall not be deemed an investment in solid channels.

 

15.5

No minimum sum for achievement was defined in this issue.

 

Discount Capital Undertaking Ltd., , Poalim I.B.I. Undertaking and Issuances Ltd., Barak Capital and Undertaking Ltd., Rosaria Undertaking Services (A.S.) Ltd. Inbar Issuance and finance Ltd. and Alpha Beta Issuance Ltd. (hereinafter together: “the Distributors”), shall serve as the Distributors for the purpose of the Offered Securities being offered pursuant to this Shelf Offering Memorandum. For their services, the Distributors shall be entitled to a distribution fee at the rate of 0.1% plus duly required VAT as well as a success fee that shall be paid at the sole discretion of the Company at a rate of up to 0.1% plus duly required VAT and all from the immediate proceeds that shall actually be received in respect of the Offered Debentures pursuant to the Shelf Offering Memorandum. The Distribution and success fees shall be divided among the Distributors at Discount Capital Underwriting Ltd.’s sole discretion. In addition, a coordination fee at the sum of NIS 25,000 shall be paid to the Issue Coordinator.

 

For details about an early commitment fee that shall be paid to the Classified Investors in respect of the Offered Securities for which the Classified Investors committed to submit orders, see clause 4 of the Shelf Offering Memorandum.

 

16.	Updates to the Shelf Prospectus

 

In accordance with that stated in Regulation 4 of the Shelf Offering Regulations, all reports submitted by the Company subsequent to the publication of the Shelf Prospectus are included in this Shelf Offering Memorandum by way of referral. The full text of the Company's reports can be perused on the distribution website of the Israel Securities Authority at www.magna.isa.gov.il and on the TASE's website at maya.tase.co.il.

 

17.	Consent for inclusion

 

A letter of consent of the Company’s independent auditor is attached to this Shelf Offering Memorandum, which includes its consent that its opinion of the Company’s financial statements shall be included, by way of referral, in This Shelf Offering Memorandum, all in the version of the attached consent letter and subject thereto.

 

18.	Information about the Offering and the Company

 

18.1

Summary Terms of the Offer

 

Issuer	Partner Communications Company Ltd. (the “Company”)
Securities Offered	Up to NIS 225,000,000 principal amount of registered Series G Debentures (the “Debentures” or “Series G Debentures”).
Denomination	The Debentures will be issued in units, each in the principal amount of NIS 1,000 (each a "Unit").
Offering Price	NIS 1,000 per Unit.
Principal Payment Dates	Principal payable in 6 annual instalments on June 25 of each of the years 2022 through 2027. Such that each of the first four payments will constitute 10% of the principal of the total par value of the Debentures, the fifth installment will constitute 20% of the principal of the total par value of the Debentures, and the sixth payment will constitute 40% of the principal of the total par value of the Debentures.
Interest Rate	To be determined by auction process, and in any event not more than 4.00% per year, subject to some adjustments in the event of changes of the rating of the Debentures and breach of financial covenants.
Maturity	June 25, 2027.
Linkage	None
Preliminary Ranking	ilA+
Forced Redemption	The Debentures will be subject to forced redemption by the Company under certain conditions set forth in Section 10.2 of the Indenture between the Company and the Trustee dated as of 02 January, 2019
Listing	Application will be made to list the Debentures for trading on the Tel Aviv Stock Exchange (the “TASE”).
Use of Proceeds	The proceeds from this issuance will be used primarily for debt refinancing and also for the Company's on-going operations.
Governing Law	Israeli law and courts.
Trustee	Hermetic Trust (1975) Ltd.

THE OFFERED SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”) AND WILL NOT BE OFFERED OR SOLD IN THE UNITED STATES.

 

Each purchaser of the Offered Securities offered pursuant to this shelf offering document shall be deemed to have acknowledged, represented and agreed that (i) the Offered Securities offered hereby have not been and will not be registered under the U.S. Securities Act, or with any securities regulatory authority of any state of the United States; (ii) it is not located in the United States and that it is not purchasing the Offered Securities on behalf of any person located in the United States; and (iii) it was not in the United States at the time that it submitted an application to purchase or when it purchased the Offered Securities.

 

18.2

Risk Factors

 

Investing in our Company's securities involves a high degree of risk. See “Risk Factors” in Section 3.5 of the shelf prospectus filed with the Israel Securities Authority (“ISA”) on June 13, 2018 (the “Shelf Prospectus”) and in Item 3.D of our annual report on Form 20-F for the year ended December 31, 2017, filed with the U.S. Securities and Exchange Commission (“SEC”) and the ISA on March 29, 2018 (the “2017 20-F”).

 

We believe that the occurrence of any one or some combination of the following factors could have a material adverse effect on the Offered Securities.

 

You should read these risk factors in conjunction with the detailed discussion of risk factors starting on page 10 in our 2017 20-F, and those identified in our future filings with the SEC and the ISA, incorporated herein by reference. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business operations.

 

Capitalized terms used in this Section 18.2 without definition shall have the meanings assigned to such terms in the 2017 20-F.

 

18.2.1

Risks Related to the Offered Securities and the Offering

 

Our Debentures will be unsecured and will be effectively subordinated to our existing and future secured indebtedness.

Although our Series F Debentures include undertakings not to pledge our assets, subject to certain conditions described in the Shelf Prospectus, our Debentures will be unsecured and will be effectively subordinated to any existing and future secured borrowings we may have. Therefore, the rights of our creditors, including the holders of the Debentures, to participate in our assets upon liquidation or reorganization will be subject to the prior claims of our secured creditors.

 

We may not be able to generate sufficient cash flow to make payments under the Debentures.

Our ability to pay principal and interest on our borrowings (as also discussed under the risk factor entitled “Our level of indebtedness could adversely affect our business, profits and liquidity. Furthermore, difficulties in generating sustainable cash flow may impair our ability to repay our debt and reduce the level of indebtedness” in Item 3D.2b of our 2017 20-F), including on the Debentures being offered by this shelf offering report, will depend on our ability to generate cash in the future. This, to a certain extent, depends on general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

 

Should there be a significant change in any of these factors, we cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us, in an amount sufficient to enable us to pay principal and interest on our debt or to fund our other liquidity needs. As a result of substantial and continuing changes in our regulatory and business environment, our operating results and profitability have decreased significantly in the past five years, with a loss for 2015. Profit for the nine month period ended September 30, 2018 decreased by 77% compared with profit for the nine month period ended September 30, 2017. The principal factor leading to the continued decline in operating results over the past several years has been the intense competition resulting largely from regulatory developments intended to enhance competition in the Israeli telecommunications market.

 

Competition resulting from the bundled service offerings by other telecommunications groups and additional entrants into the cellular telecommunications market, as well as other actual and potential changes in the competitive environment and communications technologies, could further adversely affect our business and results of operations. Further significant declines in operating results would likely increase the need for alternative sources of liquidity. If we are unable to generate sufficient cash flow to make payments on the Debentures or our other borrowings, we will have to pursue one or more alternatives, such as reducing our operating expenses, reducing or delaying capital expenditures, refinancing the Debentures or such other borrowings, or raising equity. We cannot assure you that any of these alternatives could be accomplished on satisfactory terms or that they would yield sufficient funds to repay the Debentures and our other borrowings.

 

Although we expect to list the Debentures on the TASE, there are restrictions on your ability to transfer or resell the Debentures in the United States without registration under applicable U.S. federal and state securities laws.

The Debentures have not been, and will not be, registered under the U.S. Securities Act or the securities laws of any state or any other jurisdiction in the United States and, unless so registered, may not be offered or sold in the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and the applicable securities laws of any state or any other jurisdiction. It is the obligation of holders of the Debentures to ensure that their offers and sales of the Debentures within the United States and other countries comply with applicable securities laws.

 

A downgrade, suspension or withdrawal of the rating assigned by a rating agency to the Debentures could cause the liquidity or market value of the Debentures to decline significantly.

Maalot S&P Global Ratings Ltd., an Israeli rating agency, assigned a preliminary rating of ilA+ for this Debenture offering in an amount of up to NIS 200 million. We cannot assure you that this rating will remain for any given period of time or that the rating will not be revised, lowered or withdrawn entirely by Maalot S&P Global Ratings Ltd. or any other rating agency if in such rating agency’s judgment future circumstances relating to the basis of the rating, such as adverse changes in our business, so warrant, and a security rating is not a recommendation to buy, sell or hold securities. In July 2015, the rating of our debentures was downgraded. For more information, see the risk factor entitled "Our level of indebtedness could adversely affect our business, profits and liquidity. Furthermore, difficulties in generating sustainable cash flow may impair our ability to repay our debt and reduce the level of indebtedness" in Item 3D.2b of our 2017 20-F and "Item 5. Operating and Financial Review and Prospects – 5B. Liquidity and Capital Resources" in our 2017 20-F.

18.2.2

Risks Relating to the Regulation of Our Industry

 

If the Ministry of Communications fails to enforce its fixed-line wholesale market reforms on Bezeq and HOT Telecom, or if it fails to prevent Bezeq or HOT Telecom from lowering their retail prices for fixed-line services and thereby narrowing our margin in this segment, our business and results of operations may be materially adversely affected.

 

In the past, the Ministry of Communications (the “MoC”) has failed to enforce its fixed-line wholesale market reforms ("Wholesale Market Reform") on Bezeq-The Israel Telecommunication Corp., Ltd. ("Bezeq") and HOT Telecom LP ("HOT Telecom"), the two largest wireline infrastructure operators in Israel. See "Item 3D.2f Competition resulting from the full service offers by telecommunications groups and additional entrants into the mobile telecommunications market, as well as other actual and potential changes in the competitive environment and communications technologies, may continue to cause a further decrease in tariffs and an increase in subscriber acquisition and retention costs, and may continue to reduce our subscriber base and increase our churn rate, each of which could adversely affect our business and results of operations." and "Item 4B.12e - iv The Ministry of Communications policy regarding the fixed-line telecommunications sector" in the Company’s 2017 20-F.

 

 

For further information regarding this risk, see “Item 4B.12e - iv The Ministry of Communications policy regarding the fixed-line telecommunications sector” in the Company’s 2017 20-F.

 

In addition, the infrastructure owners (Bezeq and HOT Telecom) may lower their infrastructure retail prices thereby narrowing the margin between their retail prices and the wholesale price we are required to pay them to use their fixed-line infrastructure. This may erode our margin to the point of eradicating the economic feasibility of continuing such operations. If the MoC fails to prevent such conduct by the infrastructure owners, this may adversely affect our business and results of operations.

 

If the structural separation provisions (which apply to Bezeq and HOT) are not enforced or are removed before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations.

 

The current structural separation limitations require Bezeq to equally market all ISPs (internet service providers) when selling service bundles which include its infrastructure services and ISP services. Since the launch of the Wholesale Market Reform, Bezeq has launched a bundle which includes its services and the services of certain ISPs and does not market all ISPs equally. If the MoC continues to fail to effectively enforce this requirement, it may continue to erode our market share in the internet segment.

 

The MoC has also announced that it intends to cancel the regulations requiring Bezeq to maintain a “structural separation” between its fixed-line telephony, ILD, mobile telecommunications, internet infrastructure and services and TV operations. In the past, the former General Manager of the MoC has published official announcements which indicate its satisfaction with the implementation of the Wholesale Market Reform. The former General Manager of the MoC also provided Bezeq with a letter in which he announced it is promoting the removal of corporate separation provisions which currently apply to the Bezeq group. We strongly oppose the factual descriptions and the conclusions in these announcements. According to an immediate report filed by Bezeq during November of 2018 on this subject, the MoC is considering all options regarding the structural separation of the Bezeq and HOT groups.

If the MoC removes the structural separation provisions based on its above-mentioned announcements before we have firmly established ourselves in the fixed-line telecommunications services market (in both fixed-line telephony, passive infrastructures and broadband) and the multi-channel TV market, Bezeq and HOT may be able to offer bundled services more effectively than we, and thereby gain a competitive advantage which could adversely affect our results of operations. For further information regarding this risk, see “Item 4B.12e - iv The Ministry of Communications policy regarding the fixed-line telecommunications sector” in the Company’s 2017 20-F.

 

 

The State may impose regulations on TV content services provided over the Internet, which may negatively affect our business and results of operations.

 

The state (through the MoC and/or the Council for Cable and Satellite Broadcasting) may impose regulations on nascent TV content services which are provided over the Internet ("OTT") and which are currently unregulated. The MoC has recently published a draft bill which proposes that OTT services be regulated in stages, according to annual income of the relevant operator (the “Draft Bill”). According to the draft bill, no regulation will be imposed on local OTT services with an annual income of less than NIS 350 million. The Draft Bill is an implementation of the Filber report published in 2016.

 

If the state places burdensome regulations on our OTT services, this may raise the cost of operations in this segment and, if applied only to Israeli OTT providers, place us at a competitive disadvantage, in both cases with potential negative effects on our business and results of operations.

 

The deployment of our fiber-optic based infrastructure is dependent on effective enforcement by the Ministry of Communications of its reform enabling us to use a competitor’s cable ducts and other passive infrastructure elements.

 

The deployment of a fiber-optic based infrastructure is part of our overall strategy to become a comprehensive telecommunications group.

 

Currently, the majority of our deployment is performed based on the MoC's reform which enables us to use Bezeq's existing cable ducts in order to deploy our fiber optic cables, see "Item 4B.12e - iv- The Ministry of Communications policy regarding the fixed-line telecommunications sector" in the Company’s 2017 20-F.

 

Bezeq has not abided by some of its main obligations under the relevant MoC reform. For example, Bezeq does not allow us to place fiber-optic closures and other network equipment inside its manholes and has also attempted to charge us fees for actions which the relevant MoC decision expressly states are to be performed at no charge.

 

 During October of 2018, the MoC published a draft of a new service portfolio which will require all wireline infrastructure operators (including Partner) to allow access to their passive infrastructure elements.

 

If the MoC fails to effectively enforce its reform in this matter against Bezeq, the future progress of this project and our business and results of operations may be materially and adversely affected.

 

We have had difficulties obtaining some of the building and environmental permits required for the erection and operation of our cellular network sites, and some building permits have not been applied for or may not be fully complied with. These difficulties could have an adverse effect on the coverage, quality and capacity of our network. Operating network sites without building or other required permits, or in a manner that deviates from the applicable permit, may result in criminal or civil liability to us or to our officers and directors.

 

Our ability to maintain and improve the extent, quality and capacity of our cellular network coverage depends in part on our ability to obtain appropriate sites and approvals to install our network infrastructure, including network sites. The erection and operation of most of these network sites require building permits from local or regional planning and building authorities, as well as a number of additional permits from other governmental and regulatory authorities. In addition, as part of our network build-out and expansion, we are erecting additional network sites and making modifications to our existing network sites for which we may be required to obtain new consents and approvals.

 

For the reasons described in further detail below, we have had difficulties obtaining some of the building permits required for the erection and operation of our network sites. As of December 31, 2017, less than 10% of our network sites were operating without local building permits or exemptions which, in our opinion, are applicable. In addition, some of our network sites are not built in full compliance with the applicable building permits.

 

Network site operation without required permits or that deviates from the permit has in some cases resulted in the filing of criminal charges and civil proceedings against us and our officers and directors, and monetary penalties against the Company, as well as demolition orders. See “Item 8A.1 Legal and Administrative Proceedings” in the Company’s 2017 20-F. In the future, we may face additional demolition orders, monetary penalties (including compensation for loss of property value) and criminal charges. The prosecutor’s office has a national unit that enforces planning and building laws. The unit has stiffened the punishments regarding violations of planning and building laws, particularly against commercial companies and its directors. If we continue to experience difficulties in obtaining approvals for the erection and operation of network sites and other network infrastructure, this could have an adverse effect on the extent, coverage and capacity of our network, thus impacting the quality of our cellular voice and data services, and on our ability to continue to market our products and services effectively. In addition, as we seek to improve the range and quality of our services, we need to further expand our network, and difficulties in obtaining required permits may delay, increase the costs or prevent us from achieving these goals in full. Our inability to resolve these issues could prevent us from maintaining the quality requirements contained in our license.

 

Uncertainties under National Building Plan 36. Since June 2002, following the approval of the National Building Plan 36 (the “Plan”), which regulates network site construction and operation, building permits for our network sites (where required) have been issued in reliance on the Plan. Several local planning and building authorities have questioned the ability of Israeli cellular operators to receive building permits, in reliance on the Plan, for network sites operating in frequencies not specifically detailed in the frequency charts attached to the Plan. In a number of cases, these authorities have refused to grant building permits for network sites, claiming that frequencies are not included in the Plan. On April 12, 2018, a ruling was given by the Haifa District Court, which accepted the position of the cellular companies that in accordance with the Plan, network sites may be approved even if these sites are operating in frequencies not specifically detailed in the frequency charts attached to the Plan. This ruling was appealed to the Supreme Court and the appeal is still pending. On October 17, 2018, a ruling was given regarding the same network site by another judge in the Haifa District Court, which ruled that it is not possible to approve network sites that do not match the frequency table. The Company intends to appeal this ruling to the Supreme Court.

 

In the framework of the legal proceedings conducted by the Haifa District Court regarding this issue, the State's position was that network sites in accordance with the Plan may be approved even if they are not included in the frequency chart.

 

If a future court ruling determines that building permits cannot be issued for network sites operating in frequencies not specifically detailed in the frequency charts attached to the Plan, this could have a material adverse effect both on our ability to erect new sites as well as on our existing sites.

 

The Plan is in the process of being changed. See “Item 4B.12h Network Site Permits” in the Company’s 2017 20-F.

 

Uncertainties regarding the validity of exemptions for wireless access devices. We have set up several hundred small communications devices, called wireless access devices, pursuant to a provision in the Telecommunications Law which exempts such devices from the need to obtain a building permit. A claim was raised that the exemption does not apply to cellular communications devices and the matter reached first instance courts a number of times, resulting in conflicting decisions. This claim is included in an application to certify a class action filed against the three principal Israeli cellular operators. In May 2008, a district court ruling adopted the position that the exemption does not apply to wireless access devices. We, as well as our competitors, filed a request to appeal this ruling to the Supreme Court. In May 2008, the Attorney General filed an opinion regarding this matter stating that the exemption does apply to wireless radio access devices under certain conditions. Two petitions were filed with the High Court of Justice in opposition to the Attorney General’s opinion. On October 25, 2018, the Attorney General submitted a request to dismiss the petitions on the grounds that the matter of network sites has been regulated by regulations. The matter is still pending before the Supreme Court and the High Court of Justice. See “Item 4B.12h Network Site Permits” in the Company’s 2017 20-F. In December 2017, the Knesset Economics Committee discussed a new version of the regulations passed by the Minister of Finance in coordination with the other relevant government ministries. On May 8, 2018, the Economics Committee approved the new regulations which were published on October 25, 2018. According to the provisions of the regulations that were approved, in order to establish a new wireless access device, a short process of licensing is required before the committee engineer, which constitutes a significant obstacle to obtaining such approval.

 

If a definitive court judgment holds that the exemption does not apply to cellular devices at all, we may be required to remove the existing devices. As a result, our network capacity and coverage would be negatively impacted, which could have an adverse effect on our revenue and results of operations.

 

Uncertainties regarding requirements for repeaters and other small devices. We, like the other cellular operators in Israel, provide repeaters, also known as bi-directional amplifiers, to subscribers seeking an interim solution to weak signal reception within specific indoor locations. In light of the lack of a clear policy of the local planning and building authorities, and in light of the practice of the other cellular operators, we have not requested permits under the Planning and Building Law, 1965 (“Planning and Building Law”) for the repeaters. However, we have received an approval to connect the repeaters to our communications network from the Ministry of Communications and have received from the Ministry of Environmental Protection permit types for all our repeaters. If the local planning and building authorities determine that permits under the Planning and Building Law are also necessary for the installation of these devices, or any other receptors that we believe do not require a building permit, it could have a negative impact on our ability to obtain permits for our repeaters.

 

In addition, we construct and operate microwave links as part of our transmission network. The various types of microwave links receive permits from the Ministry of Environmental Protection in respect of their radiation level. Based on an exemption in the Telecommunications Law, we believe that building permits are not required for the installation of most of these microwave links on rooftops, but to the best of our knowledge, there is not yet a determinative ruling on this issue by the Israeli courts. If the courts determine that building permits are necessary for the installation of these sites, it could have a negative impact on our ability to obtain environmental permits for these sites and to deploy additional microwave links, and could hinder the coverage, quality and capacity of our transmission network.

 

 

An MoC economic opinion published in February 2013, included a recommendation for a further reduction of cellular call and SMS interconnect tariffs towards the end of 2016. Such a reduction may negatively affect our business and results of operations. In February 2017, the MoC notified the cellular companies that due to other priorities, it does not intend to pursue this task at this time. A recent economic opinion commissioned by the MoC has recommended that cellular interconnection charges should be cancelled.

18.2.3

Risks Relating to Our Business Operations

 

As a result of substantial and continuing changes in our regulatory and business environment, our operating results and profitability have decreased significantly in the past five years, including a loss for the year 2015.  For the nine month period ended September 30, 2018, we earned profit of NIS 37 million, a decrease of 77% compared with profit for the nine month period ended September 30, 2017. Our operating results may continue to decline in the future, which may adversely affect our financial condition.

 

Our revenues for the nine month period ended September 30, 2018 were NIS 2,445 million, approximately no change from NIS 2,434 million for the nine month period ended September 30, 2017. The Company recorded a profit for the nine month period ended September 30, 2018 of NIS 37 million, compared with a profit for the nine month period ended September 30, 2017 of NIS 164 million, a decrease of 77%.  The principal factor leading to the continued decline in operating results over the past several years has been the intense competition resulting largely from regulatory developments intended to enhance competition in the Israeli telecommunications market. These developments have caused, over the past several years, (i) significant price erosion in cellular services due to heightened competition from new entrants (since 2012) in the Israeli cellular market, (ii) a decrease in our cellular subscriber base and market share, and (iii) a significant decrease in gross profits from equipment sales. Cellular service revenues and gross profits from equipment sales may decrease further in 2019 and beyond.

 

Because the regulatory and business environment continues to evolve, generally with the objective of further increasing competition in the various markets in which we operate, depending on past and future regulatory and market developments, these factors may continue to negatively impact our business through 2019 and beyond, which may adversely affect our financial condition by, among other things, increasing the risk of a substantial impairment in the value of our telecommunications assets.  See also “Item 5D.2 Outlook” in the Company’s 2017 20-F.

Our level of indebtedness could adversely affect our business, profits and liquidity. Furthermore, difficulties in generating sustainable cash flow may impair our ability to repay our debt and reduce the level of indebtedness.

As of September 30, 2018, total borrowings and notes payables amounted to NIS 1,550 million, compared to NIS 1,923 million as of December 31, 2017. See also “Item 5B.4 Total net financial debt” in the Company’s 2017 20-F. The terms of the Company’s borrowings and notes payable require the Company to comply with financial covenants and other stipulations and allow the lenders to demand an immediate repayment of the borrowings in certain events (events of default), including, among others, a material adverse change in the Company’s business and non-compliance with the financial covenants set in those agreements. Furthermore, although the Company has entered into agreements for notes payable issuance commitments in a total amount of NIS 376.75 million (as of September 30, 2018), these agreements allow the lenders to not purchase the notes payable should any of the events of default defined for our existing debt occur prior to the date for providing the notes payable. These events of default include non-compliance with the financial covenants, as well as other customary terms. See also “Item 5B.2 Long-Term Borrowings” in the Company’s 2017 20-F.

 

In addition, our need for cash to service our substantial existing debt may in the future restrict our ability to continue offering long-term installment plans to promote sales of equipment. As a result, our ability to continue benefiting from one of the current contributors to total Company profits may be limited. (See also “ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS” and specifically “Item 5D.2 Outlook” in the Company’s 2017 20-F);

 

Our substantial indebtedness could also adversely affect our financial condition and profitability by, among other things:

•          requiring us to dedicate a substantial portion of our cash flow from operations to service our debt, thereby reducing the funds available for financing ongoing operating expenses and future business development;

•          limiting our flexibility in planning for, or reacting to, changes in our industry and business as well as in the economy generally;

•          increasing the likelihood of a downgrade in the rating of our Notes by the rating company;

•          increasing the risk of a substantial impairment in the value of our telecommunications assets; and

•          limiting our ability to obtain the additional financing we may need to serve our debt, operate, develop and expand our business on acceptable terms or at all.

 

If our financial condition is affected to such an extent that our future cash flows are not sufficient to allow us to pay principal and interest on our debt, we might not be able to satisfy our financial and other covenants, and may be required to refinance all or part of our existing debt, use existing cash balances or issue additional equity or other securities. We cannot be sure that we will be able to do so on commercially reasonable terms, if at all.

Competition resulting from the full service offers by telecommunications groups and additional entrants into the mobile telecommunications market, as well as other actual and potential changes in the competitive environment and communications technologies, may continue to cause a further decrease in tariffs and an increase in subscriber acquisition and retention costs, and may continue to reduce our subscriber base and increase our churn rate, each of which could adversely affect our business and results of operations.

 

Competition by Golan Telecom and HOT Mobile. HOT Mobile and Golan Telecom, which entered the market in May 2012, were awarded various benefits and leniencies by the MoC. These leniencies include a waiver of HOT Mobile and Golan Telecom’s obligation to build an independent network subject to their commitment to invest in a shared network with another operator the same amount that they have committed to invest in their UMTS network. Such leniencies and benefits place us at a substantial competitive disadvantage, which may negatively affect our results of operations.

 

Entrance of the sixth facility-based operator. Following the 4G tender results, Marathon 018 Xfone Ltd. ("Xfone") gained one band of 5 MHz in the 1800 range, allowing it to share its frequencies with other operators and share their network (as part of a network sharing agreement). Cellcom, Golan and Xfone have reached a network sharing agreement which has been approved by the Anti-Trust Commissioner and the Ministry of Communications. This agreement has enabled Xfone to enter the market as the sixth facility-based operator, which has further increased competition levels in the cellular market and caused further rate decreases, thus negatively affecting our results of operations.

 

The acquisition of Golan Telecom by Electra, which was approved by the Anti-Trust Commissioner under certain conditions and by the MoC, might increase competition in the cellular market. Electra's retail business allows it access to a wide customer base and distribution network and may enable it to offer attractive package prices to their customers. Furthermore, the terms under which the acquisition of Golan by Electra has been approved by the relevant regulators may also affect our ability to compete. See "Item 3D.1d- Network sharing and similar agreements entered into by our competitors" in the Company’s 2017 20-F.

 

Network sharing and national roaming agreements entered into by our competitors. Our knowledge of the content of the network sharing and national roaming agreements entered into by our competitors is based on partial publications, including reports filed by Cellcom, Electra and the IDB Development Company Ltd. However, if such agreements (or any such future agreements) have been approved under conditions that are more lenient than those imposed on us, or if such conditions are not effectively enforced by the relevant authorities, this would place us at a competitive disadvantage compared to our competitors. As a result, our business and results of operations may be negatively impacted. See “Item 3D.1d The Network Sharing Agreement we entered into with HOT Mobile may be terminated earlier than we expected due to regulatory intervention. In such case we will be required to split the shared network with HOT Mobile, and the resources, time and expense it may take us to have our own network on a nation-wide coverage may be substantial and could also materially harm our business and the results of operations at such time. Network sharing and similar agreements entered into by our competitors may place us at a competitive disadvantage" in the Company’s 2017 20-F.

 

Entrance of additional MVNOs. The entrance of additional Mobile Virtual Network Operators (“MVNOs”) may further increase competition in the cellular market. Some MVNOs are retailers with a wide customer base and distribution network that allows them to offer attractive package prices to their customers. See “Item 4B.9a Competitors in the Cellular Services market” in the Company’s 2017 20-F.

 

Competitive advantages of the two fixed-line infrastructure groups. The Bezeq Group and the HOT Group are the only Israeli telecommunications providers that have their own nationwide fixed-line telecommunications infrastructures. See "Item 3D.1c If the structural separation provisions (which apply to Bezeq and HOT) are not enforced or are removed before we have established ourselves in the fixed-line and TV markets, this would adversely affect our business and results of operations" in the Company’s 2017 20-F.

 

Because the Bezeq Group and the HOT Group operate their own broadband internet access and transmission infrastructures, they do not depend on any third party for broadband internet access. Partner and other telecommunications services providers who do not have their own independent broadband internet access infrastructure are unable to provide some of these services, and are dependent on Bezeq and HOT in providing some of these services, substantially limiting their ability to compete.

 

Entry into the fixed-line infrastructure market. In August 2017, we announced the commencement of the commercial phase and acceleration of our independent fixed-line infrastructure deployment using fiber optics. Entry into this market entails significant long-term investments associated with infrastructure deployment, for which a positive return on capital is not expected in the short term.  As a result, our results of operations may be adversely affected. In addition, our entrance into this market may accelerate the entry of additional competitors, deploying their own competitive infrastructures and operating existing ones, all of which might reduce or limit our market penetration.

 

Furthermore, entry into new markets (e.g. television services, fixed-line infrastructure) may further intensify price competition in the cellular and fixed-line markets which may have an adverse effect on our results of operations.

 

Israel Broadband Company (IBC). In August 2013, the Minister of Communications granted Israel Broadband Company (2013) Ltd. (“IBC”), a general license for the provision of fixed-line telecom services (infrastructure) and for the establishment of a nationwide optic fiber network using the Israeli Electric Company’s infrastructure. IBC has launched a web portal in which it offers ISP services to end-users (through agreements with selected ISPs). The variety of suppliers, immediate choice, and ability to quickly switch suppliers may commoditize the ISP segment and negatively impact our revenues and profits. IBC was also granted a special license for the provision of domestic fixed-line data communication. According to local media reports, IBC is permitted under its special license to provide its services to large business customers. Entry of IBC into the large business segment of the ISP market may increase competition in this segment and erode our market share and may affect our results of operation. In August 2018 Cellcom signed a memorandum of understanding for the acquisition of a controlling share in IBC. During that month, the MoC decided to allow IBC to apply for a new license, thus replacing its universal deployment obligation with an obligation to reach only 40% of Israel's households within 10 years from the grant of such license. If the MoC decides to grant IBC such leniencies and not treat other competitors (such as Partner) equally by providing them with the NIS 150 million grant that was paid to IBC by the State, this may place us at a competitive disadvantage and adversely effect on our results of operations.

 

Sale of handsets and other equipment. Competition in the market for handsets and other equipment including tablets, laptops, audio-visual devices and other related equipment sold by the Company is high and may increase, which may affect our results of operation.

 

 

Competition in Roaming Services. Some of our competitors may be able to obtain lower roaming rates than us either since they have larger call volumes or through their affiliations with other international cellular operators. Some competing service providers use alternative technologies for roaming that bypass the existing method of providing roaming services.  Further competition in roaming services (both inbound and outbound) has arisen and may arise in the future from other telecommunication operators and new technologies that allow subscribers to use global SIM cards and pure internet-based services such as Skype, Viber and WhatsApp, as well as other operators' products which use VoIP applications. In addition, some cellular operators market plans that, in addition to calls, SMS and internet, include roaming services to set lists of countries.

 

Reliance on other service providers for roaming. We rely on agreements to provide roaming capability to our subscribers in many areas outside Israel. However, we cannot control the quality of the service that other telecommunication companies provide or whether they will be able to provide the services at all, and it may be inferior to our quality of service. Our subscribers also may not be able to use some of the advanced features that they enjoy when making calls on our network. As a result, we may lose some of our customers’ roaming traffic to other roaming solutions, which would negatively impact our results of operations from this important source of earnings.

 

Actual and alleged health risks related to network sites and the use of mobile telecommunications devices, including handsets, could have a material adverse effect on our business, operations and financial condition.

 

A number of studies have been conducted to examine the health effects of wireless phone use and network sites, and some of these studies have been construed as indicating that radiation from wireless phone use causes adverse health effects. Media reports have suggested that radio frequency emissions from network sites, wireless handsets and other mobile telecommunication devices may raise various health concerns.

 

The Ministry of Health published in July 2008 recommendations regarding precautionary measures when using cellular handsets. The Ministry of Health indicated that although the findings of an international study on whether cellular phone usage increases the risk of developing certain tumors were not yet finalized, partial results of several of the studies were published, and a relationship between prolonged cellular phone usage and tumor development was observed in some of these studies. These studies, as well as the precautionary recommendations published by the Ministry of Health, have increased concerns of the Israeli public with regards to the connection between cellular phone exposure and illnesses.

 

In May 2011, the International Agency for Research on Cancer (“IARC”), which is part of the World Health Organization (“WHO”), published a press release according to which it classified radiofrequency electromagnetic fields as possibly carcinogenic to humans based on an increased risk for adverse health effects associated with wireless phone use.

 

In June 2011, WHO published a fact sheet (no. 193) in which it was noted that “A large number of studies have been performed over the last two decades to assess whether mobile phones pose a potential health risk. To date, no adverse health effects have been established as being caused by mobile phone use”. It was also noted by WHO that “While an increased risk of brain tumors is not established, the increasing use of mobile phones and the lack of data for mobile phone use over time periods longer than 15 years warrant further research of mobile phone use and brain cancer risk in particular, with the popularity of mobile phone use among younger people, and therefore a potentially longer lifetime of exposure”. WHO notified that in response to public and governmental concern it will conduct a formal risk assessment of all studied health outcomes from radio frequency fields exposure by 2014. We are not aware that such an assessment has been published.

 

We have complied and are committed to continue to comply with the rules of the authorized governmental institutions with respect to the precautionary rules regarding the use of cellular telephones. We refer our customers to the precautionary rules that have been recommended by the Ministry of Health, as may be amended from time to time.

 

While, to the best of our knowledge, the handsets that we market comply with the applicable laws that relate to acceptable Specific Absorption Rate (“SAR”) levels, we rely on the SAR levels published by the manufacturers of these handsets and do not perform independent inspections of the SAR levels of these handsets. As the manufacturers’ approvals refer to a prototype handset, and not for each and every handset, we have no information as to the actual level of SAR of the handsets along the lifecycle of the handsets, including in the case of repaired handsets. See also “Item 4B.12g Other Licenses” in the Company’s 2017 20-F. Furthermore, our network sites comply with the International Council on Non-Ionizing Radiation Protection standard, a part of the World Health Organization, which has been adopted by the Israeli Ministry of Environmental Protection.

 

Several lawsuits have been filed in the past against operators and other participants in the wireless industry alleging adverse health effects and other claims relating to radio frequency transmissions from sites, handsets and other mobile telecommunications devices, including lawsuits against us.

 

A class action was filed against us and three other operators alleging, among other things, that health effects were caused due to a lack of cell sites, resulting in elevated levels of radiation, mainly from handsets. The plaintiffs stressed that health damages are not a part of the claim. Another class action was also filed against us and three other operators alleging, among other things, that the supply of accessories that are intended for carrying cellular handsets on the body are sold in a manner that contradicts the instructions and warnings of the cellular handset manufacturers and the recommendations of the Ministry of Health, and without disclosing the risks entailed in the use of these accessories when they are sold or marketed. In these two class actions, Partner and the plaintiff filed a settlement agreement, which the court approved.

 

In February 2009, a municipal court ruled against one of our competitors, stating that there is no need for the standard burden of proof to prove damages from a cellular network site, and that under certain circumstances it would be sufficient to prove the possibility of damage in order to transfer the burden of proof to the cellular companies. To the best of our knowledge, the defendant appealed the ruling and the ruling was dismissed as part of a settlement between the parties. Although we were not a party to this proceeding, such rulings could have an adverse effect on our ability to contend with claims of health damages as a result of the erection of network sites.

 

The perception of increased health risks related to network sites may cause us increased difficulty in obtaining leases for new network site locations or renewing leases for existing locations or otherwise in installing mobile telecommunication devices. If it is ever determined that health risks existed or that there was a deviation from radiation standards which would result in a health risk from sites, other telecommunication devices or handsets, this would have a material adverse effect on our business, operations and financial condition, including through exposure to potential liability, a reduction in subscribers and reduced usage per subscriber. Furthermore, we do not expect to be able to obtain insurance with respect to such liability.

18.3

Recent Developments

 

18.3.1

Trading Update—Key Factors Affecting Our Results of Operations

 

In 2018 to date, the competition in the Israeli telecommunications market continued across both cellular segment services and fixed-line segment services, as well as in the market for equipment and device sales.

 

This continued competition, together with increased capital investment, as the Company continues to invest in fiber and TV services, are expected to continue to have a downward effect on the Company's profits and free cash flow in the near term. The Company believes that these investments will constitute a potential growth engine for the Company in subsequent years.

 

For the interim condensed consolidated financial statements of the Company as at and for the nine months ended September 30, 2018, and the related notes thereto, please see Appendix D.

 

18.3.2

Indebtedness and Capitalization

 

The following table sets forth our capitalization and indebtedness (i) as of September 30, 2018 and (ii) as adjusted to reflect:

 

●	Series F notes issued on December 4, 2018; and

●	the offering and sale of the Offered Securities offered hereby.

 

 

						New Israeli Shekels in millions
						Adjustments
		As of September 30, 2018				Series F notes issued on December 4, 2018				This offering of Series G Debentures				As Adjusted
Cash and cash equivalents			361				150				222				733
Short term deposit			291												291
Debt
Notes payable series C, net of deferred costs, including current maturities			215												215
Notes payable series D, net of deferred costs, including current maturities			436												436
Notes payable series F, including premium costs, including current maturities			649				150								799
Notes payable series G, less deferred costs, including current maturities			0								222				222
Borrowings from banks and others			250												250
Total debt			1,550				150				222				1,922
Equity:
Share Capital			2												2
Capital surplus			1,131												1,131
Accumulated retained earnings			539												539
Treasury shares			(272	)											(272	)
Non-controlling interests			1												1
Total shareholders’ equity			1,401												1,401
Total Capitalization and Indebtedness			2,299												2,299

The Company purchased its own shares in October 2018 in a total amount of NIS 18 million. The Company also repaid debts, other than the Offered Securities, in December 2018 in a total amount of NIS 332 million. These are not presented in the capitalization table above.

 

18.4

Ratio of Earnings to Fixed Charges

 

Our ratio of earnings to fixed charges for the periods indicated below was as follows:

 

		2013				2014				2015				2016				2017				Nine Months Ended September 30, 2018
Ratio of earnings to fixed charges			1.73				2.10				0.84				1.48				1.58				1.73

 

The ratio resulting from the application of the proceeds of the debt offering is not provided because it is less than 10%.

 

Our ratio of earnings to fixed charges is calculated by dividing (i) income (loss) from ordinary activities before income taxes plus fixed charges by (ii) fixed charges. Fixed charges consist of interest expensed and capitalized, amortization of issuance costs relating to our notes payable, and one third of our operating leases, principally for antenna sites (being the portion deemed to represent the interest factor).

 

18.5

Use of  Proceeds

 

The net proceeds from the offering, after deduction of the arranger’s fees and other expenses and commissions of the offering, will be approximately NIS 222 million.

 

We intend to use the net proceeds from the offering primarily for debt refinancing and also for the Company's ongoing operations.

 

18.6

Expenses of the Offering

 

The aggregate amount that we will pay for arrangement fees and our other commissions and expenses in connection with this offering is approximately NIS 3 million.

 

18.7

Incorporation of Certain Information by Reference

 

We are allowed to incorporate by reference into this shelf offering report the information that we file with the SEC and the ISA, which means that we can disclose important information to you by referring to those filings. The information incorporated by reference is considered to be part of this offering report. We are incorporating by reference in this shelf offering report the documents listed below, the documents listed in Section 3.14 of the Shelf Prospectus and any future filings we may make with the SEC and ISA on Form 20-F or on Form 6-K (to the extent that such Form 6-K indicates that it is intended to be incorporated by reference herein) prior to the termination of this offering:

 

·	Form 20-F for the year ended December 31, 2017, filed with the ISA on March 29, 2018;

·	Form 6-K filed with the ISA on March 29, 2018 (relating to fourth quarter and annual 2017 results);

·	Form 6-K filed with the ISA on April 3, 2018 (relating to interest rate for the series D notes for the period commencing on March 31, 2018 and ending on June 30, 2018);

·	Form 6-K filed with the ISA on April 15, 2018 (relating to the Company's collaboration with Amazon Prime Video in Israel);

·	Form 6-K filed with the ISA on April 17, 2018 (relating to the Company receiving a lawsuit and a motion for the recognition of this lawsuit as a class action);

·	Form 6-K filed with the ISA on May 6, 2018 (relating to results of the extraordinary general meeting of shareholders and changes to the Board of Directors);

·	Form 6-K filed with the ISA on May 15, 2018 (relating to Company’s announcement of the release of first quarter 2018 results);

 

·	Form 6-K filed with the ISA on May 24, 2018 (relating to changes to the Board of Directors);

·	Form 6-K filed with the ISA on May 31, 2018 (relating to a share buyback plan);

·	Form 6-K filed with the ISA on May 31, 2018 (relating to the Company’s first quarter 2018 results);

·	Form 6-K filed with the ISA on June 13, 2018 (relating to the filing of the Shelf Prospectus);

·	Form 6-K filed with the ISA on July 4, 2018 (relating to the interest rate for the series D notes for the period commencing on July 1, 2018 and ending on September 30, 2018);

·	Form 6-K filed with the ISA on July 12, 2018 (relating to the receipt of a temporary allocation of spectrum bands);

·	Form 6-K filed with the ISA on July 26, 2018 (relating to the Company’s announcement of the release of second quarter 2018 results);

·	Form 6-K filed with the ISA on August 6, 2018 (relating to the results of the Company's repurchase of its shares);

·	Form 6-K filed with the ISA on August 13, 2018 (relating to S&P rating);

·	Form 6-K filed with the ISA on August 15, 2018 (relating to the Company’s second quarter 2018 results);

·	Form 6-K filed with the ISA on September 13, 2018 (relating to materials for the annual general meeting of shareholders);

·	Form 6-K filed with the ISA on October 4, 2018 (relating to the interest rate for the series D notes for the period commencing on October 1, 2018 and ending on December 31, 2018);

·	Form 6-K filed with the ISA on October 10, 2018 (relating to changes to the proxy statement for the annual general meeting of shareholders);

·	Form 6-K filed with the ISA on October 28, 2018  (relating to the results of the Company's repurchase of its shares);

·	Form 6-K filed with the ISA on October 28, 2018  (relating to results of the annual general meeting of shareholders);

·	Form 6-K filed with the ISA on November 1, 2018 (relating to Company’s announcement of the release of third quarter 2018 results);

·	Form 6-K filed with the ISA on November 21, 2018 (relating to Company’s third quarter 2018 results);

·	Form 6-K filed with the ISA on November 28, 2018 (relating to the announcement of an 'ilA+' rating for a deferred private placement);

·	Form 6-K filed with the ISA on December 4, 2018 (relating to the announcement of the uniform weighted discount rate for series F debentures); and

·	Form 6-K filed with the ISA on December 9, 2018 (relating to the consideration of a debenture issuance in Israel);

 

·	Form 6-K filed with the ISA on December 20, 2018 (relating to updated version of the Deed of Trust); and

·	Form 6-K filed with the ISA on December 20, 2018 (relating to updated version of the summary of stipulations); and

·	Form 6-K filed with the ISA on December 20, 2018 (relating to updated version of the Deed of Trust and the updated version of the summary of stipulation) ; and

·	Form 6-K filed with the ISA on December 30, 2018 (relating to updated version of the Deed of Trust and the updated version of the summary of stipulation).

As you read the above documents, you may find inconsistencies in information from one document to another. If you find inconsistencies between the documents and this shelf offering report, you should rely on the statements made in the most recent document.

 

We will provide to each person, including any beneficial owner, to whom this shelf offering report is delivered, a copy of these filings, at no cost, upon written or oral request to us at: 8 Amal Street, Afek Industrial Park, Rosh Ha’ayin 48103, Israel, Attn.: Corporate Secretary, telephone number: 972-54-7814-888. Copies of these filings may also be accessed on the SEC’s website at www.sec.gov, the ISA’s website at www.magna.isa.gov.il and our website at www.partner.co.il. Except for such filings, information contained on such websites is not part of this shelf offering report.

 

18.8

Legal Matters

 

Certain legal matters with respect to the offering of the Debentures are being passed upon for us by Agmon & Co., Rosenberg, Hacohen & Co. of Tel Aviv, Israel and by Shearman & Sterling (London) LLP of London, United Kingdom.

 

19.	The legal opinion:

 

The Company received the following opinion:

 

 

January 3, 2019

 

Partner Communications Company Ltd.

8 Amal Street

Afek Industrial Park

Dear Mr./Ms.,

 

Re: Partner Communications Company Ltd. (hereinafter: “the Company”) –

 

With reference to the Company’s Shelf Prospectus dated June 13, 2018, and to the Shelf Offering Memorandum that is being published by virtue thereof, we hereby issue our opinion as follows:

 

1.	In our opinion, the rights attached to the securities being offered pursuant to the Shelf Offering Memorandum have been correctly described in the Shelf Offering Memorandum.

 

2.	In our opinion, the Company has the authority to issue the Securities being offered in the Shelf Offering Memorandum in the manner described in the Shelf Offering Memorandum.

 

3.	In our opinion, the Company’s directors have been duly appointed and their names are included in the Shelf Offering Memorandum.

 

We hereby agree to the inclusion of this opinion in the Shelf Offering Memorandum.

 

Sincerely,

 

Matan Daskal, Adv.		Amir Gudard, Adv.

 

Agmon & Co. Rosenberg Hacohen & Co.

 

 

20.	Letter of consent of the Company’s independent auditor

The Board of Directors of Partner Communications Company Ltd.

Dear Mr./Ms.,

We are agreeing to the inclusion, by way of referral, in the Shelf Offering Memorandum (hereinafter – “the Offering Memorandum”) of Partner Communications Company Ltd. (hereinafter – “the Company”), of the auditors’ opinion that we signed on March 29, 2018, which relates to the Company’s consolidated financial statements and to the effectiveness of internal control components on the Company’s financial reporting as on December 31, 2017, which were filed by the Company with the United States Securities and Exchange Commission and with the Israel Securities Authority within the scope of the 20-F Report for 2017, on March 29, 2017, as well as to the inclusion of our name under the title “experts” in the Offering Memorandum, as the term “expert” is defined in the Securities Act of 1933.

This letter is being issued at the request of the Company and is designated solely for inclusion in the Company’s Offering Memorandum, which will be filed with the Israel Securities Authority and is planned to be published in January 2019. Furthermore, since the securities being offered within the scope of the Offering Memorandum were not and shall not be listed pursuant to the Securities Act of 1933, we did not submit this letter of consent under the Securities Act of 1933.

Sincerely,

Kesselman & Kesselman

Accountants

PwC Israel

 

Kesselman & Kesselman, Trade Tower, 25 Hamered Street, Tel-Aviv 6812508, Israel, POB 50005, Tel-Aviv 6150001

Telephone: +972-3-7954555, fax: +972-3-7954556, www.pwc.com/il

Kesselman & Kesselman is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity

 

 

The Company:
	Partner Communications Company Ltd.
The Directors:
	Adam Chesnoff
	Alon Shalev
	Jonathan Kolodny
	Barry Ben-Zeev
	Sumeet Jaisinghani
	Barak Pridor
	Osnat Ronen
	Yoav Rubinstein
	Arieh Saban
	Arie (Arik) Steinberg
	Ori Yaron
	Yehuda Saban
	Tomer Bar Zeev

 

 

 

Appendix A – Deed of Trust

 

Appendix B – Consent to the attachment of the rating report

 

Appendix C – Lawyer’s confirmation

 

Appendix D – Summary of the financial reports dated September 30, 2018

 

Appendix E – Tel-Aviv Stock Exchange Approval

 

 

Deed of Trust
1.	Recitals, interpretation and definitions	4
2.	The issue of the Debentures and the application of the Deed of Trust	6
3.	Appointment of the Trustee; validation of its incumbency; term of incumbency; expiration of incumbency; resignation; dismissal; the Trustee’s roles; the Trustee’s authorities	9
4.	Purchase of Debentures by the Company and/or by a subsidiary and/or by controlling shareholders	11
5.	The Company’s covenants	12
6.	Compliance with financial covenants	12
7.	Restrictions on a distribution	13
8.	Rating	14
9.	Negative pledge	14
10.	Early redemption	16
11.	Immediate repayment and/or exercise of collateral (insofar as issued)	20
12.	Additional provisions regarding early redemption:	23
13.	Lawsuits and Proceedings by the Trustee	25
14.	Trusteeship on the receipts; Prioritization of creditors	26
15.	Power to delay a distribution of monies	27
16.	Notice of a distribution and deposit with the Trustee	27
17.	Prevention from payment for a reason not dependent upon the Company	27
18.	Payment acknowledgement from the Debentureholders	29
19.	Presentation of Debentures to the Trustee and recording in relation to a partial payment in the event that the Debentures are not traded on the TASE	29
20.	Investment of monies	29
21.	The Company’s covenants to the Trustee; reports	30
22.	Additional covenants	33
23.	Reporting by the Trustee	33
24.	Special Authorities	34
25.	The Trustee’s authority to employ delegates	35
26.	Indemnification of the Trustee	36
27.	Notices	39
28.	Waiver, compromise and/or amendments to the Deed of Trust	41
29.	The register of the Debentureholders	42
30.	Release	43
31.	Debentureholders’ meetings and urgent representation	43
32.	The Trustee’s fee	43
33.	Applicable law and sole jurisdiction	43

34.	General	43
35.	Addresses	44
36.	The Trustee’s liability	44
37.	Other agreements	44
38.	Authorization to report through the “Magna” system	44
Appendix A – Adjustment for a Change in the Interest Rate resulting from a Rating Revision or a Breach of Financial Covenants		46
Appendix B – The Trustee’s Fee Agreement		50
Appendix C – The Trustee’s Roles		52
First Addendum to the Deed of Trust - Debenture (Series G) (hereinafter: “the Debenture”)		54
Terms and Conditions Overleaf		55
1.	General	55
2.	The Principal of the Debentures (Series G)	55
3.	The interest on the Debentures (Series G)	56
4.	Payments of the Principal and the interest of the Debentures	56
5.	Prevention from paying, for a reason not dependent upon the Company	57
6.	Debenture Certificates and Splitting of Certificates	57
7.	Transfer of the Debenture	58
8.	Immediate repayment and arrears interest	58
9.	Amendments to the terms of the Debenture	59
10.	Payment acknowledgements from the Debentureholders	59
11.	Replacement of the Debenture Certificate	59
12.	Applicable law and jurisdiction	59
13.	Notices	59
14.	The Register of the Debentureholders	59
Second Addendum – General Meetings of the Debentureholders		60
Appendix D – Ascertaining the Existence of a Conflict of Interests		66
Third Addendum – Urgent Representation for the Series G Debentureholders		67

1.4.1	“This Deed” or “the Deed of Trust”	This Deed of Trust, including the appendices and addenda attached thereto and constituting an integral part thereof;
1.4.2	“The Prospectus” or “the Shelf Prospectus”	As defined in the recitals above;
1.4.3	“Shelf Offering Memorandum” or “Offering Memorandum”	The memorandum under which the Debentures (Series G) are being offered to the public pursuant to the provisions of section 23.A,(f) of the Securities Law, 5728 – 1968, which shall furnish all of the specific details of that offering, pursuant to the provisions of any law and pursuant to the TASE regulations and directives, as they shall be at that time;
1.4.4	“The Trustee”	The Trustee referred to in the recitals of This Deed and/or any party that shall serve from time to time as the Trustee of the Debentureholders pursuant to This Deed;
1.4.5	"The Tender"	The tender during which the Debentures (Series G) will be offered to the public;
1.4.6	“The Register”	The Register of the Debentureholders as stated in clause 29 of This Deed;
1.4.7	“The Debentureholders” and/or “the Holders”	As the terms “holder” and “debentureholder” are defined in the Securities Law;
1.4.8	“The Debenture Certificate”	Debenture certificate, the version of which is attached as the First Addendum to This Deed;
1.4.9	“The Law” or “the Securities Law”	Securities Law, 5728 – 1968 and the Securities Regulations, as they shall be from time to time;

1.4.10	“The Companies Law”	The Companies Law, 5759 – 1999 and the Companies Regulations, as they shall be from time to time;
1.4.11	“Principal”	The total par value of the Debentures (Series G);
1.4.12	“Trading Day”	Any day on which transactions are transacted on the TASE;
1.4.13	“Business Day” or “Banking Business Day”	Any day on which most of the banks in Israel are open for business;
1.4.14	“The TASE”	The Tel-Aviv Stock Exchange Ltd.;
1.4.15	“The Nominee Company”	Mizrahi Tefahot Nominee Company Ltd. or a nominee company that shall subrogate for it at the Company’s sole discretion and subject to any law, provided that all of the Company’s securities are registered with that nominee company;
1.4.16	“Special Resolution”	Resolution passed during a meeting of the Series G Debentureholders, attended by at least two Holders of at least twenty-five percent (25%) of the balance of the par value of the Debentures (Series G) in circulation on the record date for the meeting, either personally or by their proxies, or during an adjourned meeting of this meeting, attended by Holders of at least twenty percent (20%) of the said balance, either in person or by their proxies, and which was passed (whether during the original meeting or during the adjourned meeting) by a majority of at least sixty six percent (66%) of all votes of those participating in the vote, excluding abstentions.
1.4.17	“Ordinary Resolution”	Resolution passed during a meeting of the Debentureholders, which convened pursuant to section 35.L.13 and 35.L.14(a) of the Law, and which was passed (whether during the original meeting or during the adjourned meeting) by a majority of at least fifty percent (50%) of the votes of those participating in the vote, excluding abstentions.
1.4.18	“Rating Company”	A rating company approved by the Capital Market Commissioner of the Ministry of Finance.
1.4.19	“Related Holder”	As this term is defined in section 28 of the Second Addendum to This Deed.

“The Debentureholders” and/or “the Owners of the Debentures” and/or “Holders” and/or “Entitled Parties”	–	As this term is defined in the Securities Law.
“Registered Holder”	–	Any party that has Debentures registered to its credit in the Register of the Debentureholders.
“Unregistered Holder”	–	Any party that has Debentures registered to its credit with a TASE member and those Debentures are included among the Debentures registered in the Register of the Debentureholders under the name of the Nominee Company.
“The Tender”	–	The tender during which the Debentures (Series G) shall be offered to the public;
“The TASE Clearing House”	–	The Clearing House of the Tel-Aviv Stock Exchange Ltd.