Sources inform ''Globes'' that Psagot Investment House Ltd. took a NIS 200 million loan at 10% interest from its parent company, Apax Partners. Psagot took the loan a year ago to finance the acquisition of the ETF company of Meitav DS Holdings Ltd. (TASE:MTDS), the acquisition of the life insurance business of Shirbit Insurance Company Ltd., and the establishment of an insurance operation.
The interest rate is considered high, and even classified by the Bank of Israel as "grey market rates".
The loan that Apax, which is managed in Israel by Zehavit Cohen, granted Psagot was without collateral, and subordinate to Psagot's bank debt. Under the terms of the loan, Psagot must repay the amount in full after five years, and will make the interest payments (which are not linked to the Consumer Price Index) on a regular basis.
Apax acquired control of Psagot three years ago at a value of NIS 2.7 billion.
In addition to the high interest rate, Apax's loan to the investment house that it controls is attractive for it for two other reasons. First, because Apax is a foreign fund, it is exempt from taxes on profits from the loan. Second, the loan is convertible into shares, a condition that might benefit Apax (which currently owns 76% of Psagot) at the expense of Markstone Capital Group, which owns the rest of the shares in Psagot.
Markstone is dealing with the huge debt that resulted from the collapse of Prisma Investment House in 2009, after the latter borrowed from banks and investment institutions to acquire mutual and provident funds from the banks at high prices. Because Markstone lacked the wherewithal to participate in the owners' loan to Psagot, if the owners' loan that Apax provided is converted into equity, Markstone's stake in Psagot will be diluted by 3%.
Sources involved in the transaction said today that Psagot, run by CEO Hagai Badash, hired Somekh Chaikin KPMG Israel, which examined the terms of the loan and compared them to prevailing terms in deals of this kind. They said that the interest rate that Apax demanded was in line with the average in the market. The sources added that there are currently dozens of loans in the market with similar interest rates.
Published by Globes [online], Israel business news - www.globes-online.com - on February 3, 2014
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