One of the first sectors to be affected by the coronavirus in Israel is local hotels. Sources inform "Globes" that the The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) insurance group recently broke off talks for providing NIS 100 million in financing to the growing Brown hotel chain, following the severe damage now being suffered in the hotel sector and uncertainty about its future.
A market source stated, "Phoenix has put its financing for Brown on hold, just as the rest of the financial system is cutting back on credit for tourism and hotels. Furthermore, Brown is not yet as well-established as the older hotel chains, such as Dan."
Hachshara Insurance Company, which made a substantial investment in Brown Hotels before the current crisis, announced last December that it was exercising its option to convert a NIS 66 million loan into 16.5% of Brown Hotels shares, at a valuation of NIS 400 million for the boutique hotel chain. Last June, Hachashara Insurance granted Brown an NIS 80 million loan, convertible into shares, as part of its non-marketable deals.
Hachara Insurance has the right to convert the NIS 14 million balance of the loan into more shares at the same value, which would increase its stake in Brown to 20%. Following the exercise of the option by Hachshara Insurance, controlled by Eli Elezra, the holding of Nir Waizman (son of hotel tycoon Meni Waizman), will be diluted to 70%. The remaining shares in Brown are held by Nir Waizman's partners: Leon Avigad and Nitzan Perry.
Brown Hotels is promoting a bond issue estimated at NIS 250 million, scheduled for May. Owing to the current crisis, however, it is very doubtful whether the issue will take place. The proceeds from the bond issue and the loan from Phoenix were earmarked to support the hotel chain's expansion plans.
According to Brown's website, it operates twelve boutique hotels, most of them in Tel Aviv, plus hotels in Jerusalem and Croatia. Brown is in the midst of an expansion program that includes construction of hotels in Athens and Thessaloniki in Greece, and in Cyprus, Germany, and the UK, as well as in Tel Aviv and other Israeli cities.
Brown said in response, "As part of its ordinary course of business, Brown was in talks with Phoenix before the outbreak of the virus for receiving financing to develop new hotels in the pipeline. The state of global tourism has changed dramatically, and we have naturally halted new investments until things settle down. Phoenix and Brown have agreed to resume discussion of the matter after the global crisis passes."
Published by Globes, Israel business news - en.globes.co.il - on March 10, 2020
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