Sources inform ''Globes'' that the Israel Securities Authority has opened an investigation against Dor Chemicals Ltd. (TASE: DORC) and Carmel Chemicals Ltd., both controlled by the Dankner family. The companies are suspected of securities violations.
Securities Authority investigators raided the offices of the two companies yesterday, and also demanded documents from Dor Chemicals attorney, Adv. Dr Avraham Ortal of the Zellermayer, Pelosoff & Co. law firm. Three Dor Chemicals employees are being questioned today.
So far as is known, the investigation into Dor Chemicals is based on conclusions by an external auditor appointed to examine irregularities at the company. Last month, the auditor found that parties at interest deals at the company were not properly disclosed. The auditor stated that, despite a legal opinion obtained by Dor Chemicals, the relationship between the company and Carmel Chemicals deviated from that of a supplier-customer relationship.
Although Carmel Chemicals accumulated $800,000 in debts since the end of 2001, it was not charged interest on the arrears. Dor Chemicals began charging Carmel Chemicals interest on its outstanding dollar debt only during the second quarter of 2004. Even so, the debt was not paid.
The auditor disagreed with the legal opinion obtained by Dor Chemicals concerning proper disclosure of Carmel Chemicals’ debt in Dor Chemicals’ financial reports. That legal opinion claimed that Dor Chemicals was not required to provide more information about Carmel Chemicals’ debt to Dor Chemicals because it involved a normal supplier-customer relationship.
In the auditor’s opinion, because the issue involved transactions between two companies under the same ownership, the relationship between Dor Chemicals and Carmel Chemicals appeared to deviate from a normal supplier-customer relationship.
The auditor found that Dor Chemicals’ chairman did not raise issues related to transactions with Carmel Chemicals at board meetings, nor was any discussion held on matters related to these transactions, such as selling at a loss, changes in the sales price, changes in the terms of payment, and rescheduling Carmel Chemicals’ debts. The board discussed the matter only once, in April 2004. Carmel Chemicals also received current plus 120 days credit, double the time for most of Dor Chemicals’ customers.
It was also found that in 1996-2004, the price at which Dor Chemicals sold formalin to Carmel Chemicals did not cover the cost of the product, thereby causing Dor Chemicals an operating loss. In contrast, Dor Chemicals posted an operating profit on sales to other customers during this period.
A year ago, the Securities Authority investigated actions by Dor Chemicals’ board, directors’ participation in board meetings, aspects of the reporting on these meetings, and other issues.
Dor Chemicals is traded at a market cap of NIS 160 million. The Dankner family owns 50.5% of the company, Polar Investments Ltd. (TASE:PLR) 22.2%, and the public the rest. Dor Chemicals posted a net profit of NIS 217.3 million in January-September 2005, compared with a loss of NIS 45 million in the corresponding period of 2004 and a loss of NIS 360 million in 2004 as a whole. The company’s sales rose 20% to NIS 241 million.
Published by Globes [online], Israel business news - www.globes.co.il - on December 13, 2005