1. The PR machine starts rolling
"The company takes the view that, in the circumstances of the case, and despite the negative consequences liable to ensue from the request for liquidation filed by the trustee of the bondholders, it has no alternative but to apply to the court and to give notice that it does not intend to oppose the request," Delek Real Estate Ltd. (TASE: DLKR announced yesterday evening. The bondholders threaten liquidation? By all means, liquidate, says Delek Group controlling shareholder Yitzhak Tshuva. I won't have a company, but you won't see a penny of the debt.
This morning, Tshuva's PR machine began to get into gear. "There was no choice," was the message. "Tshuva doesn't want to go into liquidation, but the bondholders are forcing his hand." "Tshuva put his hand deep into his pocket, and went to extraordinary lengths to avoid liquidation, but there is no-one to talk to." And of course: "The bondholders are reopening the agreement reached with them and seeking to impose new conditions."
This last claim is a little ironic, if we recall that the first to breach agreements was Tshuva himself, when Delek Real Estate failed to abide by its agreement with the bondholders, and didn't repay them their money.
2. In recent months, Tshuva has changed
Only a year ago, the words "debt arrangement" gave him the shivers, and his henchmen took care to stress that "there will be no haircut." Tshuva was considered a model for meeting debt obligations, whereas now, if Delek Real Estate really is wound up, it will be the biggest liquidation that the local corporate bond market has ever known.
If, at the start of the negotiations a few months ago, Tshuva sought to appear, outwardly at least, as behaving decently in the debt arrangement, it now looks as though he no longer cares. Public criticism washes over him.
Today, Tshuva feels things are going his way. The loss of the Egyptian gas has turned the Tamar discovery into a de facto monopoly; the committee on gas exports will give him export permits above and beyond what he expected; the New York Plaza Hotel is likely to be sold at a vast profit of $800 million, and some put it at $1 billion. Any moment now, the gas will start to flow from Tamar, and all the problems will be solved.
The position of the bondholders is the opposite. They look at Tshuva with longing eyes: the profit from the Plaza may be $1 billion, but not a single shekel will go towards covering Delek Real Estate's debts. Their frustration led them to threaten liquidation, but it seems that the bondholders misjudged the situation.
Tshuva is no longer concerned about going into liquidation. The damage to his reputation doesn't worry him any more. Delek Real Estate is a separate legal entity. Whoever bought bonds took a risk, and lost NIS 2.1 billion. It happens.
3. And this is the sad truth
Tshuva will not pay a price for disowning Delek Real Estate. On the contrary. Tshuva is pulling the plug and "does not oppose" liquidation because, unlike other controlling shareholders who fought to keep control of their companies in their hands, Tshuva will mainly see gains from the winding up of Delek Real Estate. He won't have to go ahead with the cash injection he undertook to make, and he gets NIS 2.1 billion of debt off his back.
True, there is the threat of an investigation into the conduct of the company in the past few years. Such an investigation is liable to reveal preferential treatment of creditors, strange transactions, intermediaries taking commissions in the millions, perhaps payments to associates, and other skeletons in the cupboard.
But Tshuva isn't worried. In his view, such an investigation won't find anything, and won't come near him.
The last card that the bondholders have to play is the veiled threat of an institutional boycott. It goes like this: "No institution will participate in any offering by Tshuva after he fails to meet the debts of Delek Real Estate." It sounds serious and moral, and a bill in this spirit was even put forward in the Knesset, but as time passes, it will turn out to be unrealistic. Even now, the institutions are explaining that when Delek Group comes along with a bond offering, they will "consider each case on its merits" and "will examine the issue terms".
Institutions aren't banks. They have short memories, and many interests. The institutions will pay lip service, and will come out against Tshuva with ringing rhetoric, but when the day dawns and Delek Group comes to the debt market to issue bonds to raise billions of shekels for financing gas wells, the institutions will stand in line to buy.
Back to the original sin
In the autumn of 2008, when the house of cards built by Ilik Rozanski, then Delek Real Estate CEO, started to collapse, Tshuva split the company off from Delek Group and distributed its shares to Delek Group shareholders. At the time, Tshuva's people explained that the move "expresses Tshuva's commitment to Delek Real Estate," and that the spin-off was for the benefit of Delek Real Estate, "which will become directly held by Tshuva."
The entire procedure, incidentally, took place within Delek Group. Delek Real Estate's bondholders were not consulted.
The 2008 split enabled Tshuva to remove a heavy weight from Delek Group, and to enhance its balance sheet. Today, the split enables Tshuva to allow Delek Real Estate go into liquidation without Delek Group being affected in any way. I have no doubt at all that if Delek Real Estate were still part of Delek Group, Tshuva would not dream of letting it reach a debt settlement, much less liquidation.
Published by Globes [online], Israel business news - www.globes-online.com - on April 11, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012