Last week, the Markstone fund sent its 2013 financial statements to its investors, including, in an unprecedented step, a going concern warning. In a letter to investors, the fund's management states that at the time that founding partner Amir Kess was killed in a road accident in April, its debts amounted to $220 million.
Markstone therefore warns that there is doubt concerning its ability to sell its holdings in the normal course of business and at prices that reflect their fair value, and that some of its portfolio holdings, or even all of them, may be seized by its creditors.
The fund also reported to its investors, from whom it raised $800 million a decade ago, that it had caused them a loss of 31%. This is drastically different from the 3% return that the fund presented a few months ago, and indicates how unrealistic were the valuations on which it based its reports in the past.
The reason for the drastic change is sharp downward revaluations carried out by the fund, managed by Ron Lubash, of its portfolio assets. The statements show that, at the end of 2013, the fund had invested $662 million, while the value of its investments, including those that had been realized, was stated at just $458 million.
The largest write-down is of the value of Amfic, formerly investment house Prisma, and today a company that owns 23% of investment house Psagot. Marksone wrote down the value of its holding in Amfic by 76% to $11.6 million, a huge destruction of value of 96% on the $262 million invested. This reflects a total value for Psagot, Israel's largest investment house and controlled by Apax Partners, of NIS 2.3 billion, 30% lower than in Apax's statements. Markstone is currently negotiating to sell its Psagot holding to Apax.
One of Markstone's least successful portfolio companies was bookstore chain Steimatzky, in which it wrote of its entire investment of $53 million after being compelled to transfer ownership of the chain to the Greenberg group. Marsktone states that it repaid all of Steimatzky's debts, totaling $59 million, out of capital that it recently called from its investors.
In its previous statement, Markstone consolidated its investment in Steimatzky with its investment in jewelry store chain Magnolia, apparently in a an attempt to cover up the former's weak performance. With the sale of Steimatzky, Markstone has reverted to reporting on Magnolia individually, valuing it at $66 million, which reflects a positive return of 47%.
Altogether, Markstone posted a negative IRR (internal rate of return) of 17.4% in 2013, following a negative IRR of 4.1% in 2012. At the same time, as mentioned, the fund warns that it is in substantial liquidity difficulties, that almost all its portfolio assets are mortgaged, and that it still needs to cope with significant repayments that it must make in 2014-2015.
Recently, in an attempt to deal with its liquidity problem, Markstone called on its investors, most of them US financial institutions, to inject $95 million into it. In the end, after most of the local investors, who represent 10% of the fund, decided not to respond to the call, Markstone succeeded in raising $70 million.
Published by Globes [online], Israel business news - www.globes-online.com - on August 3, 2014
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