Mega faces critical week

Mega store  photo: Eyal Yitzhar
Mega store photo: Eyal Yitzhar

Unless it receives support from parent company Alon Blue Square, supermarket chain Mega will be unable to pay suppliers.

The Mega supermarket chain is unable to meet payments to its suppliers this week without assistance from its parent company Alon Blue Square. Without an arrangement by the parent company with the banks and bondholders, Alon Blue Square will have difficulty in supporting Mega, and this will be liable to cause a chain reaction resulting in a halt in the supply of goods to the chain.

Sources inform "Globes" that, last week, many suppliers slowed the rate of supply to the chain, and some demanded payment in cash. This is in addition to Carmel Mizrahi, which completely stopped supplying Mega two weeks ago, and to the suppliers that, since the debt arrangement in June this year, have been making only partial supplies and in exchange for cash payment, among them Neto, Unilever, Leiman Schlussel, and Sugat.

Because Mega has been forced to pay cash, it does not have the cash flow to support payments due this week. The slowdown in the supply of goods threatens to hit sales hard, critical both for immediate cash flow and for the chain's chances of recovering.

Last week, Mega held a round of talks with its suppliers in order to assess whether they would continue to support it and supply it with goods. It emerged, however, that many suppliers will halt supplies this week unless they receive assurance that Mega is meeting its payments, an assurance that Mega cannot give at present. The message that went from Mega to Alon Blue Square was that unless the group reaches an arrangement with its bondholders and banks at the beginning of this week, the snowball of the collapse of Mega will start to roll and will be very hard to stop.

The Alon Blue Square board of directors met yesterday to discuss a possible new outline for an arrangement with the banks and bondholders. Last week, the bondholders agreed to give the group a grace period of two weeks to make payments, but the assessment is that this will not help Mega, and that suppliers will not be willing to wait two weeks, all the while increasing their exposure to the chain.

Even large suppliers with credit insurance say that in present circumstances their exposure to Mega is in the millions of shekels, since their credit insurance policies contain an excess clause. One supplier said, "Mega's whole debt arrangement with the suppliers is based on guarantees provided by Alon Blue Square, and if there is no confidence in the guarantees, it can't end well."

Published by Globes [online], Israel business news - www.globes-online.com - on November 1, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Mega store  photo: Eyal Yitzhar
Mega store photo: Eyal Yitzhar
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