Kardan NV (TASE: KRNV;AEX:KARD) is close to an agreement for the sale of its 98.4% holding in water infrastructures company Tahal Group to the Fortissimo Capital fund for $120-130 million (NIS 412-446 million). According to market sources, the deal can be expected to be signed within the next few days, subject to agreement on the final price and accompanying terms, this after the attempt to sell Tahal to Chinese buyers failed.
Nevertheless, the series B bondholders in Kardan NV and the trustee of the series, Hermetic Trust, may try to scuttle the deal. The trustees, who have been in constant touch with Kardan NV's management, called a bondholders meeting for this afternoon to discuss the company's situation and the action to be taken to safeguard the bondholders' interests.
It would appear that Kardan NV will ask to receive the proceeds of the deal very shortly, in order to meet upcoming payments to its bondholders, and thus avoid being declared insolvent. On February 1, the company is due to pay principal and interest to the B series bondholders amounting to NIS 286 million (20% of the series), and on February 25 it is due to make the last repayment to the A series bondholders, a sum of NIS 206 million.
Kardan NV should have had about NIS 30 million cash at the end of 2017, so that a sale of Tahal at the higher end of the price range should be enough to cover the upcoming debt payments (assuming that it does not incur additional expenses such as for tax debts). The series B bondholders fear, however, for the remaining debt owed to them, amounting to NIS 878 million (principal and future interest), due in February 2019 and February 2020. The B series bonds are traded at a yield to redemption of 74%. The main holders of the series are The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) (NIS 96 million par value); Meitav Dash (NIS 78 million); Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) (NIS 65 million); and Psagot (NISD 61 million).
Kardan NV, controlled by controlled by Joseph Greenfeld, Avner Shnur, and Eitan Richter, is a holding company that encountered severe financial difficulties five years ago and has since then been realizing assets in order to repay its debts to the holders of its two bond series.
In July 2015, Kardan NV arrived at a debt arrangement with its bondholders, in exchange for an allocation of 11% of the shares in the company and a cash payment of €750,000. Since the arrangement, additional assets have been realized and debts of NIS 560 million have been repaid, but the desire to suffice with only a limited deferral of repayment dates has proved problematic.
With a buyer like Fortissimo, headed by founder and managing partner Yuval Cohen, the deal for the sale of Tahal can be signed and completed quickly. For that to happen, however, it looks as though the consent of the B series bondholders will be required. In the cash flow forecast attached to its third quarter 2017 financials, Kardan NV's management estimated that the company could obtain proceeds of €110 million (NIS 450 million) in the course of 2018 from the sale of its financial arm (KFS) and its holding in Avis Ukraine.
In 2019, the company is supposed to attempt to sell its real estate activity in China, especially the shopping mall its built in the port city of Dalian. This mall is recorded in Kardan NV's books at €224 million, and it is saddled with debt of €115 million. It is still operating at only 77.4% occupancy, however, and it posted an NOI loss of €2.1 million for the first nine months of 2017.
Published by Globes [online], Israel business news - www.globes-online.com - on January 8, 2018
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