Alon Blue Square Israel (NYSE: BSI), the parent company of supermarket chain Mega, plans a further debt arrangement in order to try to sell the Mega in the City (Mega Ba'ir) sub-chain of stores within residential areas. Figures that have reached "Globes" indicate that the parent company plans a huge debt write-off of more than NIS 700 million.
It is also reported that the Mega chain currently has an equity deficit of NIS 800 million, and that the parent company intends to reduce the deficit to just NIS 60 million, through the debt write-down.
In the past few weeks, Alon Blue Square CEO Avigdor Kaplan has been attempting to sell Mega in the City, and has signaled that the group's controlling shareholders desire to divest themselves completely of the collapsing chain.
Alon Blue Square has received several expressions of interest in Mega, but no actual buyers, because of the many obstacles that stand in the way of a sale. Mega has enormous debts, and so a sale cannot go ahead without the agreement of the banks, the suppliers, and other service providers, to a debt write-down.
In addition, Mega's workers have been promised one third of the shares in the chain, and at least some of the potential buyers have said that they do not want the employees as partners.
For their part, the employees might be willing to forego the shares, on condition that they are hired by the acquiring company under their existing collective labor agreement. On top of this is the obstacle of the debt Mega owes to the parent company.
The debt arrangement being formulated at Alon Blue Square has never been presented to the suppliers, who, talking to "Globes", have fiercely attacked it. One of the players who expressed interest in Mega told "Globes" that there had been talks with the banks, and that some had at first expressed willingness to write off part of the debt, but that they had changed their minds.
The sword dangling over everyone's heads is a receivership. Unless Mega in the City is sold as part of a debt arrangement, the entire chain will go into receivership, and then all the creditors will stand to lose much greater amounts.
Under the debt arrangement being formulated, the suppliers will be required to forego the deferred debt totaling NIS 200 million. The deferred debt is 30% of Mega's original debt to its suppliers, which the suppliers agreed to defer for two years and to spread over 36 repayments.
The banks, to which Mega owes NIS 440 million, will be also be required to make concessions. Alon Blue Square is a guarantor of NIS 200 million of this debt, and the banks will be asked to write off 30% of the remaining amount, about NIS 70 million. Other service providers to Mega will be asked to forego debt totaling NIS 40-50 million.
Under the planned arrangement, Alon Blue Square will forgive owners' loans of NIS 170 million and a further NIS 260 million in loans from guarantor companies, giving a total of NIS 430 million, not including the loan guarantees to the banks.
Capital market sources estimate that Alon Blue Square is counting on its market cap soaring as soon as the Mega hot potato is passed to other hands, but that the chances of the plan coming to fruition, even if the suppliers agree to it, are slim, because of its complexity, with so many players having to come into line at the same time: the suppliers, the banks, the workers, and the buyer.
Most of those who have expressed interest in buying Mega in the City have halted their talks with the chain and with the parent company. There are no longer talks with Rami Levy Chain Stores Hashikma Marketing 2006 Ltd. (TASE:RMLI), the G. Yafit group, Cofix Group, the Shuk Ha'ir chain, and Neto, which has denied the reports of its interest in the chain. Some are waiting to see whether Mega goes into receivership. If that happens, they may be able to buy branches through the court.
The consortium that is still in the picture includes brothers Yossi and Zwi (Zvika) Williger, Yossi Sagol, and Eran Meital. A source in the consortium told "Globes" that they were examining a deal in the context of a debt arrangement, and that no-one would buy Mega without such an arrangement.
Alon Blue Square said in response, "Since we exited the discount stores and sold the You branches, we have received offers from several players interested in buying the chain, and no concrete financial arrangement has been formulated. The publication of fragments of information generates speculation that makes it very difficult to implement Mega's recovery plan and harms the company."
Published by Globes [online], Israel business news - www.globes-online.com - on January 5, 2016
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