Ceragon unlikely to collect big Peruvian debt

Doron Arazi, Zvika Naveh and Yaakov Peri credit: Liora Katz and Eyal Izhar
Doron Arazi, Zvika Naveh and Yaakov Peri credit: Liora Katz and Eyal Izhar

Despite the best efforts of intelligence company CGI, the Israeli network equipment vendor has been forced to write of a $12.4 million debt.

In February, Israeli network equipment vendor Ceragon Networks (Nasdaq: CRNT) published its financial statement for 2022. During the conference call that the company's management conducted with investors and analysts on the same day, Ceragon announced that its trade receivables at the end of 2022 amounted to $112 million.

About 11% of the amount ($12.4 million) was debt to a single customer against which legal proceedings had just been begun. "We believe that we are taking active steps to collect the debt and we will continue to examine the situation closely," promised CFO Ronen Stein.

Two and a half months later, at the start of May, Ceragon published its financial results for the first quarter of 2023 as well as its 20-F report for 2022.

during the conference call after the quarterly results, a correction made in the 2022 annual report was revealed. Stein drew the attention of investors to the fact that the correction had moved Ceragon from an operational profit of $1.4 million, as reported in February, to an operational loss of $10.9 million. The correction also affected the bottom line with the $7.4 million GAAP net loss reported in February widening to a $19.7 million GAAP net loss.

The widening loss had arisen from that same single customer. Stein told the conference call. "Recently, there was a change in circumstances, which reduced the likelihood of collecting the debt in full in the near term, and as a result we found it appropriate to recognize a provision for credit losses," which grew following the correction of $14.3 million, "mainly from a single customer."

The expanded report states that after several attempts to collect the debt from the customer, including an attempt to settle the terms of payments, as well as "as a result of a change in the interaction with the customer, which turned into a dispute, and additional difficulties concerning the steps the company took to collect the debt," the likelihood of collecting the debt effectively in the near term is small, and the company could not guarantee that its steps on the subject will be successful.

Stein added, "We want to stress that we are continuing to take vigorous steps to collect the debt," and that this issue has no effect on the company's forecast for 2023 (a forecast that was also raised later this year and currently cites growth of 13-18% in revenue to $348-334 million and annual non-GAAP profitability).

The source of the debt that increased Ceragon's loss last year was from a big project in which it was engaged in Peru with Orocom. Ceragon, which provides wireless transmission solutions, reported in 2018 that it had been awarded a project with Orocom as part of the Peruvian government's initiative to deploy a wireless network that would provide broadband connectivity to millions of Peruvians living in remote rural areas. The contract was worth at least $26 million.

In 2018, Ceragon reported that it had provided $29.1 million in bank guarantees to the government on behalf of Orocom, and received two representatives on the Peruvian company's board of directors. In reports the following years, the company reported that the guarantees had been returned and that its membership on the board of directors had been canceled.

Intelligence company collecting debts worldwide

However, over the years, the Peruvian company ran up a debt to Ceragon. "Globes" has learned that one of the steps taken by the company in an attempt to recover the debt was hiring CGI Group, for hundreds of thousands of dollars, including a $200,000 advance. CGI deals in business intelligence and strategic consulting and was headed by the former head of the Shin Bet Yaakov Peri and Zvika Naveh.

CGI occasionally hits the headlines. For example, in 2019, valuable 18th century jewelry was stolen from a museum in Dresden, Germany, as part of a sophisticated robbery. CGI helped solve the mystery and about a year later suspects were arrested who confessed to the crime.

In another case, revealed by "Globes" last year, Israeli businessman Gad Ze'evi asked for CGI's help to collect a debt from the Bulgarian government, and CGI offered a solution: African country Congo would order old weapons from Bulgaria, which would send the equipment, and when the payment was transferred, Ze'evi would take the amount owed to him . The plan did not succeed and the parties blamed each other for the failure, but did not pursue legal proceedings against each other.

Another case involving CGI, reported in 2018, concerned elections in Georgia. CGI was hired by the president who was one of the candidates, to find information about the rival party. He discovered, according to reports, an attempt to plan an assassination of the former prime minister, who was also the richest man in the country. In Israel, CGI was hired by Oracle after it was disqualified from the government Nimbus cloud tender.

Regarding the Ceragon case, CGI CEO Zvika Naveh said, "We do not comment in the media about our clients and our activities in Israel and the world. We stress that CGI is supported by legal advice in every country where we work, to ensure activity in accordance with the local law."

Millions of dollars evaporated in remote villages

"Globes" has learned that CGI began working with Ceragon on on the Peruvian debt issue at the beginning of the year. In April, CGI submitted an interim report on the matter to Ceragon, which estimating the chances of collecting the debt from the company or its owners. After collecting intelligence from open sources (OSINT) and speaking to sources in Peru and Colombia, who were close to the owners of the Peruvian company. CGI stated that according to a source who knows the owner well, he was no longer personally involved in the company and it was believed that if he could avoid payment without serious consequences, he would do so.

Also, although the Peruvian company evades paying suppliers, it still applies for government tenders in Peru and benefits from its connections there. The report also found a number of negative reports about the owner from the past few years, including an investigation of a company under his control in Honduras on suspicion of fraud, and arrest warrants issued in Guatemala for managers of another company under his control.

CGI's interim report included conclusions according to which the chance of repaying the debt is low without using commercial "leverage" and legal procedures or finding significant information, although the recommendation was not to initiate legal proceedings, among other things, for fear of a long process in which the other party could accuse Ceragon of wrongful conduct.

Ceragon said, "The company does not usually comment on information allegedly related to it that is not public information published by it in reports according to law, including in relation to its customers, suppliers, service providers, etc."

Avoiding a hostile takeover attempt

Ceragon, led by CEO Doron Arazi, is traded on Nasdaq with a market cap $165 million. The company's share price has risen 3% since the start of 2023, but is down almost 70% since the start of 2021. Last year, the company's board of directors warded off a hostile takeover by US rival Aviat, which bid to buy Ceragon for $259 million, but did not win support from shareholders in an attempt to change the board of directors. At the time, Ceragon's board of was headed by Zohar Zisapel, who died in May.

In the first half of 2023, Ceragon reported $170 million revenue, up 20% from the corresponding period of 2022 (of the amount, 15% of revenue was from Latin America). In the first half of 2023, the company swung to an operating profit of $10.4 million and a net profit of $4.1 million.

Published by Globes, Israel business news - en.globes.co.il - on October 5, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Doron Arazi, Zvika Naveh and Yaakov Peri credit: Liora Katz and Eyal Izhar
Doron Arazi, Zvika Naveh and Yaakov Peri credit: Liora Katz and Eyal Izhar
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