Yitzhak Tshuva has published an offer to purchase for the remaining bonds issued under the debt arrangement for Delek Real Estate, a company under his control, for nearly NIS 130 million. Under that NIS 2.15 billion arrangement, which was completed six and a half years ago, the bondholders lost 65% of their holdings.
Tshuva now fully owns Delek Real Estate. It reports to the Tel Aviv Stock Exchange (TASE) through April Holdings, which was founded as a special purpose vehicle (SPV) for the settlement and reported the offer to purchase. Details of the offer show that Tshuva wants to buy the remaining Series 1 bonds issued by April at their par value for a total of NIS 95 million (plus interest for early redemption) and the remaining Series 2 bonds for NIS 33 million more. The current volume of Series 2 bonds is just over NIS 90 million, which Tshuva is offering to buy at NIS 0.36 for NIS 1 par value.
The original redemption date of April Holdings' Series 1 bonds, issued in late 2012 and listed for trading on the TASE in May 2014, is December 2019. According to the bond terms, the company is entitled to early redemption of the series "at its initiative without any compensation component," provided that this takes place "according to the full obligatory value," meaning the principal plus interest accumulated in respect of the principal by the early redemption date, which was set on February 25, 2019. The volume of the series is NIS 660 million, and according to the current volume, NIS 550 million of it has been redeemed in six equal payments.
Response depends on investors' optimism
The terms for the Series 2 bonds, for which Tshuva is offering NIS 33 million, are slightly more complicated. It can be regarded as a kind of option on Delek Group Ltd. (TASE: DLEKG) shares, which have to reach at least NIS 1,200 (as an average price set according to the redemption dates). If the Delek Group share price does not reach this target price, all of the bond obligations will be canceled. Delek Group's current share price is NIS 640, so it must almost double in order for the redemption terms to be fulfilled. The current share price reflects a NIS 7.7 billion market cap for Delek Group, following a 30% rise in the share price over the past year.
April Holdings emphasizes in the offer to purchase for the Series 2 bonds that it is being published "despite the fact that as of this date, the condition for the company's obligation to become effective under the (Series 2) bond terms has not materialized, and there is no certainty that it will eventually materialize." The announcement adds, "The above publication of the adjusted price does not constitute an opinion about the likelihood of the redemption condition being fulfilled… Its likelihood and sustainability are unknown at this stage."
On the one hand, the offer reflects a large discount on the par value of the bonds if the condition for redemption is fulfilled. On the other hand, in the current situation, the chances of the condition for redemption of the series appear rather poor, due to the large gap between the share's market value and the value it must reach before the redemption condition is fulfilled.
April Holdings' Series 2 bonds are currently described as a security not listed for trading. The bondholders' only option for selling their holdings is in an off-floor sale.
Profits of Ovadia and Adv. Tshuva
The deadline for accepting the offer for Series 2 bonds is February 21, 2019. It can already be stated with confidence, however, that investor Avishai Ovadia and Adv. Victor Tshuva will accept it, for it will return their investment in the bond series a little over a year ago eight times.
In late 2017, Ovadia made an offer to purchase for the Series 2 bonds at NIS 0.045 per NIS 1 in par value. A similar offer by Adv. Tshuva soon followed. Their offers, which were made separately, were only partially accepted, giving them each an investment in the tens of thousands of shekels. The price in the current offer reflects a value of several hundred thousand shekels for their holdings.
Full disclosure: Avishai Ovadia writes an accounting column for "Globes."
Published by Globes, Israel business news - en.globes.co.il - on February 7, 2019
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