Shuv Energy: Why NIS 535m of FFO did not turn into cash
The main article already identified the gap between the expanding asset base and the cash that actually remains upstream. This follow-up breaks that bridge down: about NIS 535 million of project-level FFO falls to NIS 398 million after corporate financing, barely shows up in operating cash flow, and turns negative at the listed-company level.
NIS 535 Million Is Not A Cash Number. It Is A Project Debt-Service Metric
The main article already established that Shuv Energy's 2025 story is not about a lack of assets or projects. The problem is the bridge between a larger asset base and cash that actually remains available at the listed-company level. This follow-up isolates only that bridge, using an all-in cash-flexibility lens: not how much the projects can generate before real obligations, but how much cash freedom remains after debt, working capital, development spending, and upstream support.
The eye-catching number is roughly NIS 535 million of FFO in the investor presentation. But the company itself defines FFO as a metric that reflects the ability to service senior debt principal out of project receipts, without taking owner-loan interest and tax into account. In other words, it is a project finance metric first, not a measure of free cash left for shareholders.
This is not a technical footnote. It is the core of the story. In the same presentation, most of that FFO does not even sit in the layer that reaches consolidated cash flow one-for-one. Out of about NIS 534.7 million of FFO, around NIS 382.8 million, about 71.6%, comes from activities presented through proportional consolidation or equity accounting, while only NIS 151.9 million comes from the fully consolidated layer. Even before working capital, before CAPEX, and before upstream transfers, the presentation's own summary slide already shows FFO falling to NIS 398 million once corporate-level financing costs are included.
Put differently, even if one fully accepts the headline FFO number, it does not start from the same place where consolidated cash flow or parent-company cash ends. So the real question is not why NIS 535 million somehow vanished. The real question is why a project-level debt-service metric translated only marginally into group cash, and barely reached the top at all.
The Balance Sheet Looks More Liquid Than It Really Is
The company ended 2025 with NIS 246.9 million of cash and cash equivalents and with positive working capital of NIS 249.7 million, versus negative working capital of NIS 17.2 million at the end of 2024. On paper, that looks like a sharp improvement in flexibility. In practice, that is a surface-level conclusion.
More than 70% of current assets sits in four buckets that require a second look: consolidated cash, restricted deposits, current loans to held entities, and an asset classified as held for sale. These items are not the same as freely deployable cash at the listed-company level.
| Main current item | End-2025, NIS million | Why this is not the same as free cash |
|---|---|---|
| Cash and cash equivalents | 246.9 | This is consolidated cash, but part of it sits inside project entities whose distributions remain subject to coverage tests, reserve accounts, and debt service |
| Restricted deposits | 109.1 | Dedicated and restricted cash, not a free liquidity cushion |
| Current maturities of loans to held entities | 64.9 | An intra-group claim, not outside cash already in hand |
| Assets held for sale | 67.1 | Mainly Ramat Beka, meaning an asset that has not yet become cash and still depends on deal completion |
That matters because part of the improvement in the liquidity profile came from classification shifts and asset mix, not from fresh cash generation. Long-term restricted deposits fell from NIS 28.8 million to NIS 4.3 million mainly after DSRA deposits in Tze'elim and Nevatim were cancelled and reclassified into cash and cash equivalents. At the same time, Ramat Beka was reclassified into assets held for sale at NIS 67.1 million, before the transaction with Azrieli had actually closed. So the fact that working capital turned positive does not mean the company suddenly generated a comparable amount of free cash.
The presentation itself makes the point even more clearly. The 2025 liquidity stack shown by the company totals about NIS 1.157 billion, but only NIS 247 million of that is cash and cash equivalents. About NIS 699 million is available financing under signed financing agreements, and another NIS 212 million is undrawn credit lines. Those are important funding sources, but they are not cash the company has already generated. At the same time, gross debt stands at NIS 6.781 billion, of which NIS 5.849 billion, about 86%, is project debt and only NIS 932 million is public bonds.
The annual report also explains why none of this flows automatically upstream. Project financing agreements allow distributions only subject to coverage ratios, reserve-account funding, debt-service capacity, and compliance with financing undertakings. So even when a project generates FFO, that cash is not free until the financing layer has already taken what it needs.
2025 Operating Cash Flow Was Blocked By Both Missing Upstream Distributions And Working Capital
Once the definition layer and the balance-sheet layer are stripped out, the real test is operating cash flow. Here the gap is stark. Consolidated cash flow from operations fell to only NIS 22.7 million in 2025, from NIS 206.6 million in 2024.
The first reason is simple: cash barely moved upstream. Dividends and profit withdrawals from held entities fell to NIS 27.0 million, versus NIS 195.3 million in 2024. That is the clearest proof of the gap between company-share FFO and cash that actually reaches the top.
The second reason is working capital. In 2025 working-capital items absorbed roughly NIS 61.0 million in aggregate. Receivables consumed NIS 38.4 million, other receivables another NIS 39.2 million, and suppliers consumed a further NIS 25.8 million. Those uses were only partly offset by a NIS 39.4 million increase in payables and a NIS 2.9 million increase in provisions and employee benefits.
The detail is more important than the headline. The increase in receivables and accrued income was tied mainly to changed payment terms at the system operator, together with the start of activity at Etgal and Satu Mare. The increase in other receivables came mainly from VAT refunds in Europe and Israel. So this was not cash flow that collapsed because operating activity broke down. It was cash flow that got stuck in timing, collection, and development.
That is exactly the point where FFO stops being helpful. FFO does not see VAT refunds, does not see receivables that moved under different payment terms, and does not see the fact that cash remains trapped between the power plant, the project partnership, the senior debt, and the consolidated statements. Operating cash flow does see all of that, which is why it nearly disappeared.
At The Listed-Company Level, Cash Kept Moving Down Into The Pipeline, And The Market Closed The Gap
To understand why so little free cash remained, the analysis has to move from the consolidated layer into the standalone statements. There the picture is even sharper. The parent company's own operating cash flow was negative NIS 65.2 million. At the holding-company level, 2025 did not look like a harvesting year. It looked like a year in which the company was still funding the development layer and its held entities.
The company's own investing cash flow was also negative, NIS 79.9 million. The most important item inside that bridge is the gap between NIS 152.1 million of loans advanced to held entities and only NIS 81.5 million of repayments received from them. At the consolidated level, meanwhile, investment in property, plant, and equipment reached NIS 305.0 million, and another NIS 13.5 million went into an associate. In other words, what the assets generated kept going back into the assets, the pipeline, and debt service.
That is why the financing layer matters so much. In 2025 the group received NIS 393.9 million of bank and other loans and issued net bonds of NIS 255.4 million. Against that, it repaid NIS 269.8 million of loans, NIS 75.0 million of bond principal, and paid NIS 137.0 million of interest. That was enough to produce positive financing cash flow of NIS 158.2 million, but not enough to create a real rise in cash. Year-end consolidated cash was down slightly by NIS 1.8 million.
The January 2026 moves reinforce that reading. On January 23, 2026, the company said it was examining an equity raise, and in the same update it disclosed non-binding proposals for selling up to 49% of the limited-partner rights in a partnership holding Nevatim, High Voltage Track 1, Tze'elim, the Tze'elim expansion, and High Voltage Track 3, at a preliminary pre-tax valuation of about NIS 650 million. Four days later, on January 27, 2026, the company completed an equity and warrants issuance for gross proceeds of about NIS 238 million.
My reading is that the timing of those two moves is not accidental. When a company turns to the equity market and also examines a partial monetization of rights in a fixed-tariff operating partnership, the message is that the gap between project-level FFO and available group cash is still open. The company is not living only off projects that are already producing. It is still using funding and monetization to bridge into the next development phase.
Conclusion
NIS 535 million of FFO did not fail to become cash because the number somehow disappeared. It failed because it was never designed to equal free cash in the first place. It is a company-share, project-level metric, most of which sits in proportional-consolidation and equity-accounted layers, and only a small portion of which reaches consolidated cash without several intermediate filters.
Once corporate financing costs are included, the number is already down to NIS 398 million. From there the path to NIS 22.7 million of consolidated operating cash flow is blocked mainly by a collapse in dividends and profit withdrawals from held entities and by working-capital absorption. At the listed-company level, the picture is even tougher: negative operating cash flow, more funding pushed into held entities, and flexibility that comes mainly from capital markets and continued refinancing or asset monetization.
That does not cancel the value of the asset base. It just defines the next test correctly. In 2026 Shuv Energy will have to show three things together: more real upstream distributions, less cash absorption in working capital, and less dependence on equity raises or partial asset sales to fund growth. Until that happens, FFO remains an important number, but not the number that tells shareholders how much cash is really left for them.
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