Petrochemicals versus Bazan: how much of reported equity is actually reachable
Petrochemicals ended 2025 with reported equity of NIS 870.9 million, but most of it rests on a Bazan stake carried at NIS 1.376 billion while the market value of the pledged Bazan shares was only NIS 762.8 million. Once the debt layers and the thin liquidity outside the Bazan stake are inserted into the bridge, the residual for common shareholders shrinks to about NIS 257.7 million.
Where The Gap Really Opens
The main article argued that Petrochemicals' equity looks thicker than the value that is actually reachable for common shareholders. This follow-up isolates only that bridge: from reported equity, through the carrying value of the Bazan stake, to what remains after the debt layers and the practical frictions in the way.
The headline number is NIS 870.9 million of equity at the end of 2025. But almost the whole story sits in one line. NIS 1.376 billion of assets is the investment in Bazan, about 96.8% of the balance sheet. Against that, the market value of the 769.7 million pledged Bazan shares stood at only NIS 762.8 million at year-end. So the economic question for a common shareholder is not whether equity is positive. It is how much of that equity remains once the Bazan carrying value is replaced with the value that was actually visible in the market on December 31, 2025.
There is also a real asset here. Bazan itself ended 2025 with net profit of NIS 162.3 million, Petrochemicals booked NIS 33.2 million as its share of profit from the associate, and received NIS 45.0 million of dividend from it. This is not a worthless holding. But Petrochemicals itself still ended the year with a net loss of NIS 81.7 million because NIS 116.7 million of finance expense sat against that contribution. That is the core point: the value exists, but on its way to common shareholders it passes through a heavy leverage layer.
One Collateral Pool, Two Valuation Languages
The collateral table does a better job than any slogan about a discount to book. For the very same pledged Bazan shares, the company presents two different debt-to-collateral readings because it measures the collateral in two different languages.
On the carrying value of the pledged shares, Series T debt to collateral is 2.54% and Series Y is 17.19%. On the market value of the exact same shares, those ratios jump to 4.58% and 30.84%. For Series Y, the ratio already includes the balance of Series T because Series Y sits behind a second-ranking pledge.
This is not an accounting contradiction. It is simply an answer to two different questions. The carrying-value lens asks how the holding looks under the accounting rules. The market-value lens asks what the collateral layer is worth today for the creditors actually sitting on it. For anyone trying to understand what is reachable for common shareholders, the second question is usually closer to the economic reality.
The gap between NIS 1.376 billion in the books and NIS 762.8 million in the market is NIS 613.2 million. That is almost the entire distance between reported equity and a more economically reachable number for common shareholders. This is why a pure market-cap to book-equity reading can overstate the discount story. A large part of the issue starts with the fact that the equity itself is being measured on a different basis from the asset that holds it up.
What Is Left After The Debt Layers
To understand what is really left for the common share, the stack has to be read layer by layer. At the end of 2025, Petrochemicals and Petroleum held 769.7 million pledged Bazan shares, representing 24.74% of Bazan's share capital, with market value of NIS 762.8 million. Against that sat carrying debt of NIS 33.6 million in Series T, NIS 220.7 million in Series Y including the deferred benefit, and NIS 281.2 million in Series YA.
One point matters here. Series YA is not yet secured by a pledge on the Bazan shares, but it is not outside the picture either. The company has already committed to pledge Bazan shares to Series YA after full repayment of Series T and Series Y. So even if the analysis starts only from the Bazan value layer, common shareholders still sit behind three debt layers, not two.
The bridge also needs the rest of the balance sheet. Outside the Bazan investment, Petrochemicals ended the year with NIS 6.3 million of cash and cash equivalents, NIS 39.4 million of restricted deposit, NIS 0.2 million of receivables, NIS 0.1 million of long-term deposit, and NIS 3 thousand of fixed assets. On the other side sit NIS 0.5 million of current liabilities and NIS 15.2 million of a financial liability measured at fair value through profit or loss.
| Layer | December 31, 2025 | Why it matters |
|---|---|---|
| Reported equity | NIS 870.9 million | The headline number on the balance sheet |
| Bazan investment at carrying value | NIS 1,376.0 million | The asset that almost entirely supports the equity |
| Market value of pledged Bazan shares | NIS 762.8 million | A more conservative economic base |
| Series T debt | NIS 33.6 million | Senior debt with first-ranking collateral |
| Series Y debt including deferred benefit | NIS 220.7 million | The second layer sitting on the same collateral |
| Series YA debt | NIS 281.2 million | Another debt layer ahead of the common share |
| Other net assets | NIS 30.4 million | Cash, deposits and receivables net of the other liabilities |
| Residual equity after marking Bazan to market | NIS 257.7 million | Only about 29.6% of reported equity |
The NIS 257.7 million number is not a target price and not a liquidation case. It is a simple analytical bridge: replace the carrying value of the Bazan stake with the market value of the pledged shares on December 31, 2025, leave the rest of the liabilities in place, and ask what remains. Under that frame, only about 29.6% of reported equity looks more directly reachable for common shareholders. Everything else is mostly the gap between carrying value, debt layers, and value that still has not moved up the chain.
Why Book Equity Does Not Automatically Turn Into Cash
The first reason is the liquidity that sits outside the Bazan stake. At the end of 2025, Petrochemicals had only NIS 6.3 million of unrestricted cash and cash equivalents, while NIS 39.4 million sat in a restricted deposit. So even after a dividend year from Bazan, the free cash box outside the stake was still small.
The second reason is that the route from economic value to reachable value runs through Bazan, not only through the way the stake is valued. In 2025 Petrochemicals received NIS 45.0 million of dividend from Bazan. That is the cash that actually moved up a layer. By contrast, the movement in the investment account also included NIS 33.2 million of share of Bazan profit, a net NIS 16.0 million decline in capital funds, and NIS 188.2 million of negative translation differences. In other words, a large part of the carrying-value movement is not cash.
The third reason is that Bazan's dividend policy opens a gate, but does not promise a free transfer. The updated Bazan dividend policy from March 2025 allows up to 50% of annual net profit to be distributed as long as the ratio between net financial debt plus the dividend and adjusted EBITDA is between 1.8 and 2.2, and up to 75% if that ratio is below 1.8. But even under that policy, the distribution remains subject to the formal distribution tests, the limits in trust deeds and financing agreements, Bazan's liquidity and business plans, and the full discretion of Bazan's board over whether to distribute, when, and how much.
This is the core distinction between equity and reachable value. A Petrochemicals shareholder does not automatically enjoy Bazan's equity, and not automatically the value at which the holding is carried in the books. They only enjoy what can actually pass through two filters: first Bazan has to produce and distribute cash, and then Petrochemicals has to route that cash through the debt layers sitting above the common share.
There is also an important accounting point. The company concluded that, at the end of 2025, there were no indicators that required an impairment review of the Bazan investment. That does not mean the market-based economic reading is wrong. It means an accounting impairment test and an estimate of value reachable for a common shareholder are two different tests. The first asks whether the investment has to be written down under accounting rules. The second asks how much value really remains after debt, pledges, and the ability to move cash upstream.
Bottom Line
The easy mistake at Petrochemicals is to look at NIS 870.9 million of equity and treat it as something close to one-for-one value for common shareholders. That is a mistake. At the end of 2025 most of that equity rested on a Bazan holding carried at NIS 1.376 billion, while the market value of the pledged Bazan shares was only NIS 762.8 million.
Once Series T, Series Y and Series YA are inserted into the equation, together with the very small cash layer outside the Bazan stake and the fact that value from Bazan first has to turn into dividends and only then move through the debt structure, the economic bridge gets much narrower. Under a simple market bridge for December 31, 2025, what remains for common shareholders is about NIS 257.7 million, roughly 30% of reported equity.
That is why Petrochemicals is not mainly a story of a cheap stock versus book equity. It is a story of accounting value that has to pass through pledged collateral, three debt layers, and a dividend path that still needs to prove itself. Until that path gets wider, reported equity is a starting point for the discussion, not the amount that truly sits in the common shareholder's hand.
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