Delek Real Estate Ltd. (TASE: DLKR), controlled by Yitzhak Tshuva had a going concern warning attached to its financial report for the second quarter of 2011 by its auditors, Ernst & Young Israel - Kost, Forer Gabay and Kaiserer. Last week, the company announced that it not make interest payments to its creditors.
Delek Real Estate's net loss widened to NIS 393 million for the second quarter from NIS 234 million for the corresponding quarter, despite an increase in revenue to NIS 355 million from NIS 183 million.
The auditors said, "In view of the uncertainty about a comprehensive solution, which will require, among other things, approval of the debt-holders, which the company does not fully control, and in view of the doubts about the company's ability to meet its commitments on time, there is great doubt about the company's continued existence as a going concern.
Delek Real Estate CEO Eran Meital said, "We are continuing to work hard to stabilize the company and to sell assets which have reached their full betterment potential. We are also trying to improve the profitability and value of the current assets in Israel and abroad. Although these are challenging times, the understandings reached with the short-term bondholders this week will give the company the time needed to reach an agreed structure for repaying its commitments to its investors and bondholders."
In the wake of the report on the going concern warning, Delek Real Estate's Series 5 bondholders demanded that Tshuva provide a NIS 83 million personal guarantee and series 4 bondholders demanded a NIS 9.5 million guarantee. He has already provided a NIS 36 million guarantee for the series 25 bondholders. The company has rejected the demand, as the NIS 1.4 billion outstanding balance in the series 5 bond is due for repayment in 2013-19.
Delek Real Estate operates in the Israeli residential market through Elad Israel Ltd. (formerly Dankner Investments) and in the Canadian and Western European income-producing real estate markets through Delek Global Real Estate Ltd. The company has sold assets for over NIS 5 billion since falling into financial difficulties in the aftermath of the 2008 global financial crisis, in an effort to repay its debts. Despite the sell-offs, the company has lost over NIS 3 billion in the past three years, and it has a shareholders' equity deficit of NIS 1.3 billion and NIS 2.8 billion working capital deficit.
Delek Real Estate kept its head above water until a few weeks ago, when it asked its bondholders for a debt settlement. Earlier this week, it obtained a four-week moratorium on its debt payments, after Tshuva provided a NIS 30 million guarantee for the company.
In August, Tshuva announced the sale of his 55% stake in Delek Real Estate to CIM Group Inc., in exchange for a NIS 500 million loan to the company.
Tshuva, Meital, and other company executives have held two days of meetings with CIM representatives in Los Angeles, and are due to return to Israel on Friday.
Delek Real Estate's share price fell 4.8% by early afternoon to NIS 0.218, giving a market cap of NIS 88 million
Published by Globes [online], Israel business news - www.globes-online.com - on September 1, 2011
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