It has been a week that Nochi Dankner and Ilan Ben-Dov would be glad to forget. After years of enjoying a supportive and admiring capital market that enabled them to pass just about any decision they wanted in the public companies they control, and to raise billions of shekels almost without collateral, Ben-Dov and Dankner discovered the other side of the market this week. Investors slashed Dankner and Ben-Dov's stocks and bonds without mercy.
It looks as though everything is going wrong for the pair, and both sustained double blows this week that only made the result worse: Dankner suffered from the outbreak of a price war in the mobile telephony market that hurt his group's cash cow, Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL). At the same time, the share price of Credit Suisse, another important holding, continued to slide.
Ben-Dov's situation is certainly no better. He too has been hit by the turmoil in the mobile market, which has turned his leveraged acquisition of Partner into a deal at an inflated price, remote from today's market realities. Furthermore, the threat by the minister of communications of a reform in the mobile handset market threatens what was considered one of his more stable activities, namely importing Samsung telephones.
If we add to that the heavy debt burden borne by both men's companies, we have a lethal combination, which alarmed investors and led to the sharp falls. In Ben-Dov's case, the decline is not just on paper, but has critical significance, setting a snowball rolling. It shrinks the value of the collateral of Suny (shares of Scailex Corporation (TASE: SCIX; Pink Sheets:SCIXF)) for the bondholders. Suny has no further collateral to give them, and there is cause for a demand for immediate repayment. In other words, the bondholders could take over Scailex if they don't reach a settlement with Ben-Dov. Scailex, in case anyone has forgotten, controls Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR). In other words, the snowball that Michael Golan threw on Monday is liable to have the ultimate effect of depriving Ben-Dov of Partner.
For both Ben-Dov and Dankner, the capital market is pointing the way to a debt settlement, through the fantastic yields to which it has sent their bonds. On the face of it, Ben-Dov and Dankner could say that, despite everything, a debt settlement is not on the agenda. Both have sources from which to make their next debt payments, and so the market is reacting in panic. IDB insists (including in its reposnse sent today) that a debt settlement is not about to happen. Really? I wouldn't be too sure.
The long-term bondholders understand the situation in the two groups very well. They will presumably have learned from past occurrences, and will not make do with controlling shareholders' declarations and plans. At best, they are likely to demand a bondholders' meeting; at worst, they could petition the court to prevent repayment of the short-term bonds, arguing that this would amount to preference. That way, the bondholders could impose a debt settlement, whether Ben-Dov and Dankner want one or not.
In the future, perhaps we will be able to analyze the question whether Dankner and Ben-Dov, each in his sector, could have acted otherwise. For example, if Dankner had sold his Credit Suisse stake last summer, or had managed to complete the sale of Clal Insurance.
At the moment, all that doesn't matter. Dankner and Ben-Dov are both on the fast track to a debt arrangement (at the moment of truth they will certainly call it a debt rescheduling and not an arrangement). It looks as though only a miracle can prevent it.
Published by Globes [online], Israel business news - www.globes-online.com - on May 17, 2012
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