The banks are demanding that El Al Israel Airlines Ltd. (TASE: ELAL) controlling shareholder Eli Rozenberg inject an additional $75 million into the airline. Rozenberg bought a controlling 42.88% stake in El Al for $150 million in a public offering on the Tel Aviv Stock Exchange (TASE) in September.
As part of the Ministry of Finance's financial rescue plan, Rozenberg is meant to take bank loans or offer bonds to institutional investors with government guarantees. The initial plan called for $250 million with 75% government guarantees but the Ministry of Finance has agreed to raise this to $300 million with 82.5% guarantees.
In recent months, the situation in the aviation sector has only worsened, making it even more difficult for El Al to obtain the loan. Most of the airline's employees are on unpaid leave and the few scheduled flights that there were have been completely wiped out by the government's closure of Ben Gurion airport.
Due to the protracted crisis making matters even more difficult for El Al, with its cash reserves running out and debt rising (to passengers for canceled flights, suppliers and financing institutions), the banks understand that a loan of $300 million will not be sufficient. So in parallel to raising debt, they want Rozenberg to inject $75 million to inflate the airline's cash cushion. From Rozenberg's point of view, he would prefer to inject capital through an offering of $50 million in shares, which he has committed to buying, out of the required sum.
However, the Companies Law prohibits this without a special offer to purchase shares to the public by El Al. Another option for the cash injection without raising Rozenberg's holding above 45% would be an owner's loan. Rozenberg has already injected $10 million at zero interest into El Al in this way.
A Ministry of Finance official said, "The situation is very bad in terms of the ratio of debt to revenue of the company." The official said that the demand for a capital injection is from the banks and reiterated that the government guarantees of 82.5% of any debt is limited to $300 million.
El Al is currently in advanced talks with several banks. Any loan is being held up by the dispute with the pilots who are appealing to the labor court against the agreement signed on their behalf by the Histadrut (General Federation of Labor in Israel).
El Al declined to comment on the report.
Published by Globes, Israel business news - en.globes.co.il - on February 2, 2021
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