Shmuel Baruch: How much of Kedma and Elad surplus can actually move upstream
The presentation shows ILS 179.9 million of surplus across the three pledged projects, but by year-end 2025 only ILS 131.7 million still remained to be pulled, and even that layer is pledged first to banks and bondholders. The real question is not how much project surplus exists, but how much survives the path upward and becomes free cash.
What Is Actually Left of the Big Number
The main article already separated project profit, bond collateral and corporate cash. This follow-up narrows the question to the three projects that underpin the collateral package of Bond Series A: Akko Kedma South, Akko Kedma North and Rehavia Elad.
The first number that jumps out of the presentation is ILS 179.9 million of surplus across that trio. The more important year-end number is different: in the annual report's project tables, only ILS 131.7 million was still expected to be pulled. The gap is not just accounting caution. ILS 30 million had already been pulled from Kedma South in the fourth quarter of 2025, while the expected pull in Kedma North fell to ILS 20.9 million and Rehavia fell to ILS 98.7 million.
| Project | January 2026 presentation | Already pulled | Surplus still expected to be pulled at year-end 2025 | Change versus presentation |
|---|---|---|---|---|
| Akko Kedma South | 41.2 | 30.0 | 12.2 | -29.0 |
| Akko Kedma North | 30.6 | 0.0 | 20.9 | -9.7 |
| Rehavia Elad | 108.1 | 0.0 | 98.7 | -9.4 |
| Total | 179.9 | 30.0 | 131.7 | -48.2 |
The key nuance sits in Kedma South. This is not mainly a case of project deterioration. It is a case of moving from theoretical surplus to an actual release. The annual report already shows ILS 30 million pulled, plus another ILS 12.2 million that may be pulled around the second quarter of 2026. Put differently, this project has already delivered most of the number that previously sat in the presentation headline. If the ILS 30 million already pulled is added back to the ILS 12.2 million still expected, the full project economics reach ILS 42.2 million, slightly above the presentation figure.
The weaker read sits in the two projects that still have distance to travel. Kedma North's expected pull fell from ILS 30.6 million to ILS 20.9 million, and Rehavia fell from ILS 108.1 million to ILS 98.7 million. Kedma North also has an added friction point: the annual report states that Kedma South and Kedma North share one accompanying bank account, so the lender may exercise setoff rights between the two projects. Even inside the Kedma cluster, this is not two isolated cash boxes moving upward on their own.
Who Owns That Surplus on the Way Up
This is where the real story sits. Bond Series A holders have a first-ranking charge over the company's rights to receive released surplus amounts from Kedma South, Kedma North and Rehavia Elad, and over the relevant trust account and pledged accounts. So when surplus is released from a project accompaniment account, it does not automatically become free corporate cash. It first becomes part of the collateral package behind the debt.
That layer largely replaced mezzanine financing, not the upstream bottleneck. In Kedma South, the mezzanine loan was fully repaid already in December 2024 from the bond raise. In Rehavia, the mezzanine was repaid during 2025 from bond proceeds. That is an improvement in the funding structure, but it does not move equity to the front of the queue. It mainly shifts part of the project value from mezzanine to a secured public bond layer.
The simplest way to see that is to assume the ILS 131.7 million that is still expected to be pulled will indeed be released in full. Even in that scenario, before the company can talk about genuinely free cash, it still has Bond Series A sitting against it with a year-end carrying amount of ILS 78.9 million, before future interest and before any other corporate uses.
That is still not cash available to equity. It is only a rough gross margin above the bond layer, and only if three things happen together: the project lenders approve the release, the company satisfies all project-level conditions, and no other uses absorb the money on the way up. The report itself is clear that surplus release is subject first to mezzanine repayment if one exists, then to senior-debt repayment, to full compliance with project obligations, and only then to lender approval. In Kedma North and Kedma South there is also the possibility of setoff between the two projects.
Why This Is Still Not Free Cash
The line that best explains the gap between project surplus and free cash sits in working capital and cash flow, not in the project appendices. In 2025 the contract position moved from a net liability of ILS 3.5 million to a net asset of ILS 134.6 million. That means the company recognized ILS 315.4 million of revenue while collecting only ILS 177.2 million of advances. That gap consumed cash.
| Metric | 2024 | 2025 | What it means |
|---|---|---|---|
| Net contract position | -3.5 | 134.6 | Revenue recognition moved faster than customer advances |
| Operating cash flow | 227.6 | -84.0 | Profit did not convert into cash |
| Cash and cash equivalents | 0.7 | 2.0 | Very little free cash remained at the company |
| Restricted cash | 9.3 | 5.0 | Part of the cash is still trapped inside project accounts |
The annual report itself links the year-end cash balance to profit withdrawals from Kedma South and withdrawals from accompaniment accounts. In other words, the ILS 30 million already released from Kedma South did not remain visible as meaningful free corporate cash by year-end. That also fits with negative operating cash flow of ILS 84.0 million, a working-capital deficit of ILS 23.4 million, and the company's statement that proceeds from the bond expansion were used for investments in existing projects and for ongoing operations.
Even after money leaves a project, not every shekel becomes distributable. The bond deed blocks distributions if equity after the distribution falls below ILS 50 million, if the equity-to-balance-sheet ratio falls below 17%, if an immediate-default trigger exists, or if the distribution exceeds 30% of net profit after tax. So even ILS 84.8 million of retained earnings at year-end 2025 is not the same thing as free cash.
Bottom Line
Kedma and Elad surplus is real, but most of it still lives in the security layer rather than in the freedom layer. At year-end 2025 the three pledged projects carried ILS 131.7 million still expected to be pulled, not ILS 179.9 million, and ILS 30 million of that story had already left Kedma South but did not remain visible as meaningful free cash at the top of the structure.
So the important question is not whether the projects create value. They do. The question is how much of that value survives the path upward: after the project lender, after Bond Series A, after the possible setoff inside the Kedma pair, and after the company's own cash needs. Until that answer starts showing up as clearly free corporate cash, project surplus should be read as debt coverage and as an upstream option, not as cash that has already reached the top.
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