In the first expression of distrust in Alon Holdings Blue Square - Israel Ltd. (NYSE: BSI; TASE: BSI), the parent company of the Mega Retail supermarket chain, the Central Bottling Company (Coca Cola Israel) yesterday notified the Mega chain that it did not intend to supply it with merchandise, and that products made by Tara Dairies would also not be supplied as part of the same policy. Since the announcement, Mega management has been in touch with the Central Bottling Company in an attempt to reach an arrangement, but the efforts were unsuccessful, as of web posting. Mega is concerned that additional suppliers will follow the Central Bottling Company by halting their supplies to the chain.
Waiting for a debt arrangement
Sources in Mega yesterday confirmed that it the company planned to pay NIS 90 million to suppliers yesterday. At the same time, as of now, Mega is unable to undertake that it would be able to pay an additional NIS 60-70 million to suppliers next week. This week's payment was the result of the emerging debt arrangement between Alon Holdings Blue Square and the bondholders and the banks. Particulars of the arrangement were reported yesterday to the Tel Aviv Stock Exchange (TASE), but the agreement has not yet been approved.
The Alon Group, a private company that controls public company Alon Holdings Blue Square, is also in urgent negotiations with bondholders for a debt arrangement, after the bondholders said there were grounds for concern that the Alon Group would fail to meet its payments.
Mega and the suppliers are closely following the proposed debt arrangement, which is designed to ensure Mega's continued operations, if only temporarily, while failure to reach a debt arrangement will cause the chain to collapse immediately, because it needs the NIS 320 million in financial support from its parent company agreed in Mega's debt arrangement.
Meanwhile, the chain is making efforts to obtain the suppliers' agreement to return to the credit terms that prevailed before Mega went into crisis. It is believed that Mega will be unable to meet the current payment terms. Some of the suppliers are delivering merchandise only for cash, and the extent of this demand rose significantly last week.
The guarantees provided by Alon Blue Square to Strauss Group Ltd. (TASE:STRS) expired at the end of October, and the guarantee given to the Central Bottling Company is also expected to expire soon. Both groups are demanding that Alon Blue Square renew the guarantees.
The credit companies are refusing to insure
Suppliers told "Globes" that some of them will not agree to return to the previous payment terms without an increase in the guarantees provided by Mega, in view of the fact that the credit companies are refusing to insure the supply to the chain. Small suppliers, for whom sales to Mega are important, are expressing a more positive attitude from Mega's perspective.
Only fresh produce was supplied to Mega yesterday. According to the suppliers, Mega limited its orders to fresh produce. If this policy continues, there will be substantial shortages at the chain from Wednesday.
Mega CEO Raviv Brookmayer told "Globes," "At this stage, I don't know how to estimate the chances of reaching a settlement with the suppliers for reverting to the previous credit terms. I expect, though, that the suppliers will realize how important this is, and will give us a hand to continue the extrication of Mega from the crisis, following the emerging settlement between Alon Blue Square and the bondholders and banks.
"I'm ordering merchandise as usual right now. I want to see better stocked shelves and the variety offered by the chain available to its customers. We have to retain our customers and consumers, and the most basic thing is products on the shelf and attractive bargains."
"Globes": Suppliers are saying that you reduced your orders to a minimum, to fresh produce only, and that at this rate, we will see shortages in the chain on Wednesday.
Brookmayer: "I don't recognize these decisions - it's not accurate. I hope that by tomorrow, the shelves will again be full."
Published by Globes [online], Israel business news - www.globes-online.com - on November 3, 2015
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