Ever since "Globes" was the first to report the debt settlement proposed by Delek Real Estate Ltd. (TASE: DLKR), controlled by Yitzhak Tshuva, there have been calls that he should increase his financial contribution to the settlement beyond his offer of NIS 250 million over five years. Tshuva's most important holding is his 64% stake in Delek Group Ltd. (TASE: DLEKG), whose share in Israel's offshore natural gas discoveries has a current market cap of NIS 5 billion.
Ostensibly, Tshuva has the wherewithal to sell Delek Group shares to cover Delek Real Estate's NIS 2.1 billion debt to its bondholders. However, an investigation by "Globes" found that banks have liens on most of Tshuva's Delek shares. The financial covenants stipulate that he cannot reduce his stake in Delek Group to less than a 51% controlling interest. Most of the shares are attached to Bank Hapoalim (TASE: POLI), and a small number to Israel Discount Bank (TASE: DSCT) and Citigroup Inc. (NYSE: C). For this reason, Tshuva cannot take substantial money out of Delek Group or sell a substantial part of his stake in the company without the permission of the banks, especially Bank Hapoalim.
In addition to the controlling interests in Delek Group and Delek Real Estate, Tshuva owns Elad Properties, which owns real estate in North America. But Elad must service a NIS 2.4 billion debt to Israeli bondholders.
"Tshuva has no liquidity like Africa-Israel Investments Ltd. (TASE:AFIL) chairman Lev Leviev had," a top banker, who has advised Tshuva for many years, told "Globes". "Even if he does summersaults, he cannot raise hundreds of millions of shekels just to please [Delek Real Estate's] bondholders. In practice, he has no substantial liquid assets. Almost all his property is in Delek Group shares."
The banker added, "Leviev was able, within a short time, to give his creditors NIS 1 billion, but he's the exception. Tshuva can't do it. I doubt if any businessman in Israel could do it. Every last one of them is leveraged up to his neck and the banks have liens on their shares."
A bank CEO said, "Tshuva has to find a solution and pay, otherwise he'll be on a slippery slope. I think that he doesn’t understand the immense harm caused to his reputation. It simply hasn’t seeped in."
Another banker believes that the banks will not allow Tshuva to harm the financial standing of Delek Group in order to solve a problem at Delek Real Estate, and we should therefore reach a long-term deal with the bondholders to benefit from future gas royalties, when they start flowing.
Problems at Delek Group subsidiaries prevent them from distributing dividends. Delek Israel Fuel Corporation Ltd. (TASE: DLKIS), which operates gas stations in Israel and together with sister company Delek Europe BV, in Western Europe, suffers from low marketing margins; most of the stake in Ford and Mazda importer Delek Automotive Systems Ltd. (TASE: DLEA), once a cash cow was sold to its CEO, Gil Agmon, and now faces problems caused by the appreciation of the Japanese yen; The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) is barred from distributing dividends by the regulator; and Delek Energy Systems Ltd. (TASE: DLEN), the directly parent company of Tamar and Leviathan partners Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L), has huge potential, but needs to raise capital to develop the offshore gas fields.
On Sunday, Delek Real Estate offered to convert its NIS 2.1 billion bondholders debt into a new NIS 400 million bond payable in 2017-18; a new ten-year NIS 800 million bond with payments beginning in 2017; and 70% of Delek Real Estate shares at a value of NIS 950 million. The valuation was made by Barnea Financial Consultants, owned by Prof. Amir Barnea.
If Tshuva's NIS 250 million promised is added, Delek Real Estate will still have a shareholders' equity deficit of NIS 550 million. Market sources estimate that the offer amounts to a 40% haircut for the bondholders - NIS 800 million.
Published by Globes [online], Israel business news - www.globes-online.com - on November 24, 2011
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