Tshuva has run out of options

Irit Avissar

In its current condition, Delek Real Estate, with its shareholders' equity deficit of NIS 2 billion, cannot service its debt.

Yitzhak Tshuva hates the word "haircut". He has relied for years on the capital market to finance the bulk of his businesses, and he wants it to continue to do so. He is also an honorable man. He is proud that he keeps his word and pays his debts. The idea that he has to take a dunking of the kind undergone by Lev Leviev and Beny Steinmetz, and which Ilan Ben-Dov is taking, unquestionably appalls him.

Therefore, over the past three years, Tshuva did everything he could so that Delek Real Estate Ltd. (TASE: DLKR) would meet its commitments and pay its bondholders on time. It is to his credit that has fought to keep the company afloat, finding solutions wherever he could. He injected capital through rights issues, provided loans and guarantees, bought bonds. He has personally injected NIS 400 million to avoid a debt settlement by the company.

Tshuva has recruited companies of Delek Group Ltd. (TASE: DLEKG), which he also controls, to the effort. Delek Group and Delek Israel Fuel Corporation Ltd. (TASE: DLKIS) bought properties from Delek Real Estate, and The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) eased its loan terms; every solution imaginable, everything that could be done to service Delek Real Estate's imaginable debt burden.

But September is approaching, and Delek Real Estate will have to make a NIS 300 million-plus bond payment. Its coffers are empty, tenants want to reduce their rent, and banks are foreclosing on properties. Tshuva knows he is cornered and Delek Real Estate has no way to raise the amount needed.

Tshuva has no choice. In its current condition, Delek Real Estate, with its shareholders' equity deficit of NIS 2 billion, cannot service its debt. Tshuva will have to do what he has tried to avoid at any price: ask the bondholders for a postponement and win a few months breathing room to formulate a debt settlement.

Morally, Tshuva's wish and efforts to avoid a debt settlement are to his credit. But in business terms, it might have been better had he sought a settlement 18 months ago to deal with Delek Real Estate's huge debt, as Leviev did with Africa-Israel Investments Ltd. (TASE:AFIL).

Leviev took a lot of heat over Africa-Israel's debt settlement, but today, Tshuva would be happy to exchange Delek Real Estate's condition with that of Africa-Israel, which has more or less resumed its routine.

We can still offer a word of advice to Tshuva: look at the furious response to the debt settlement Ben-Dov offered for Tao Tsuot Ltd. (TASE: TAO-M) last week. The proposal has been slammed as unfair and unreasonable. Tshuva should come up with a fair plan that will compensate bondholders and not give them haircuts.

Since the question of whether a debt settlement includes a haircut often becomes subjective, depending on the quality of the assets' valuation, which is quite flexible, if Tshuva really wants to be fair with his bondholders, he should use a very conservative valuation and simultaneously show real willingness to personally inject more capital into Delek Real Estate.

Published by Globes [online], Israel business news - www.globes-online.com - on July 21, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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