Tevel’s failed business deals in recent years have had an amazing effect on the company’s value. Sources inform “Globes” that First International Bank of Israel (TASE:FTIN1; FTIN5), which owns a 46.5% stake in Tevel previously owned by United Pan-Europe Communications (UPC) (Nasdaq:UPCOY; AEX:UPC), is asking only a few million dollars for the holding. Several cable and other concerns have contacted the bank about buying the stake.
First International Bank of Israel cited Tevel’s NIS 3.2 billion debt, including NIS 2.5 billion to the banks, as the reason for its miniscule asking price. Tevel’s owes its largest creditor, Bank Leumi (TASE:LUMI), NIS 1 billion; Bank Hapoalim (LSE:BKHD; TASE:POLI) NIS 500 million; First International Bank NIS 450 million; and Israel Discount Bank (TASE: DSCT ) NIS 400 million. Tevel owes unsecured creditors NIS 700 million. Tevel’s huge debt has resulted in a record negative equity of NIS 1.6 billion as of December 31, 2002.
The events that led to First International Bank’s possessing the stake began in early November 2000, when the bank discounted a Discount Investment Corporation (TASE:DISI) bond. Discount Investment had received 48.5% of Tevel from a UPC granddaughter company. Under the terms of the bond, UPC was given a loan with a €55 million principle; together with the interest the loan amounted to €67 million. First International Bank received a lien on 23% of Tevel for the loan; a holding that was worth at least double the amount of the loan at the time. UPC later went bankrupt and notified First International Bank that it could not repay the loan.
UPC and First International Bank reached a compromise, under which UPC transferred to First International Bank it entire stake in Tevel in exchange for canceling the debt. By this time, First International Bank’s lien on 23% of Tevel was no longer enough to cover the debt, because Tevel’s value had plummeted and was now also being managed by a trustee under a stay of proceedings.
First International Bank believes its Tevel stake is virtually worthless, and in November 2002, the bank posted an allowance for doubtful debt for most of the debt. The bank now values its Tevel holding at almost nil. The bank does not want to hold onto the shares for any length of time, and has been seeking a buyer for them.
Tevel has the largest debt per subscriber of all Israel’s three cable companies, at $1,600, compared with the planned $1,100 debt per subscriber for the merged cable company. As part of the merger, Tevel’s shares will be transferred to Matav-Cable Systems Media (Nasdaq: MATV; TASE:MATV), whose current debt per subscriber is $600, i.e. less than anticipated debt per subscriber of the merged cable company. This transaction will reduce Tevel’s debt, while simultaneously giving Matav the debt instead of cash for the difference between its debt per subscriber and the merged cable company’s, thereby avoiding capital flight out of the merged cable company. At the end of the procedure, Matav will become the largest shareholder in the merged cable company, with 49%, while Tevel will own only 18%.
Published by Globes [online] - www.globes.co.il - on April 3, 2003