Ilan Ben Dov has a problem and it is not the problem you think he has. In the past few months our attention has been focused on the troubles at his investment company Tao Tsuot Ltd. (TASE: TAO-M). For Ben Dov it is important that Tao with its core ownership of almost NIS 500 million in equity does not go bankrupt and he doesn't want to lose it. But what is even more important to him is not to lose Orange franchisee Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR), the apple of his eye and the main asset in the chain of holding companies he controls.
The danger of losing control of Partner is not purely theoretical. The pyramid of debt that Ben Dov built to acquire Partner, now threatens to bring him down. Ben Dov bought Partner in 2009 with high leverage and almost no equity. The excel sheets that he presented then did not show the dividends that Partner distributes servicing the huge debt of Scailex Corporation (TASE: SCIX; Pink Sheets:SCIXF), which was acquiring along the chain the debts of its parent company Suny Electronics Ltd. (TASE: SUNY), held directly by Ben Dov. But that is the beauty of excel spreadsheets - any number you put onto them looks great.
So two years have gone by, and it now appears that the numbers are not great. Scailex's great numbers are still there on paper. The regulatory assault on Israeli cellular providers and intensified competition are compelling Partner to reduce dividends and fire hundreds of employees.
Cracks in the pyramid are becoming visible. It won't happen tomorrow, or even next year, but if Partner stops distributing dividends at the rate typical since the acquisition, and that is a reasonable scenario, then by 2013 and 2014 it will be difficult for Scailex to meet its bond repayments. And that is before we are talking about Suny, the controlling shareholder in Scailex, which also has its debts.
The optimal solution would be to recycle the debts but the state of the capital market and the tense relations between Ben Dov and financial institutions is such that the chances of Scailex recycling its debts are low. And those debts are guaranteed by Partner. Therefore, Ben Dov will do everything to service Scailex's debt, because if he does not meet them he will lose control of Partner. That's the reason Scailex reported today about the sale of 50% of its Samsung import operations to Teddy Sagi.
All assets are up for sale
Sagi is a rare bird in the 2011 business environment. He has high liquidity and low leverage. But his assistance comes at a price. Sagi is buying half of the Samsung mobile handset import activities at a market value of NIS 600 million and is committing a further NIS 200 million in securities for credit.
Only a few months ago, when Ben Dov first tried to hawk his original Tao debt settlement, Samsung's import activities were valued at NIS 1 billion. Has its value fallen so much? That's not for certain. It seems that Ben Dov's troubles have dictated the price, because in the battle to retain Partner all assets are for sale. This includes those Partner shares that do not have a lien on them.
Published by Globes, Israel business news - www.globes-online.com - on December 19, 2011
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