Maariv
The Ma'ariv headquarters in Tel Aviv. Photo by David Bachar
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One year after acquiring control of Ma'ariv Holdings and spending NIS 300 million on Ma'ariv shares, loans and company bond purchases, one of Discount Investments' major investors woke up and is looking for answers.

Psagot Investment House sent a follow-up letter to Discount Investments CEO Ami Erel seeking clarifications regarding the company's investment in Ma'ariv Holdings, the owner of Israeli's Ma'ariv daily newspaper.

"As a major creditor of Discount Investments in particular, as well as the IDB group in general, we are obligated to track the decisions and activities of our loan recipients," Psagot CEO Hagai Badash wrote in the letter. "This includes tracking their activities with respect to their assets and other creditors to maximize benefits accruing to Psagot's partners and clients."

Psagot told Erel in the letter that the company had previously requested clarifications regarding Discount Investments' holdings in Ma'ariv on June 19 and had yet to receive a response.

Of particular concern to Psagot was how Discount Investments’ audit committee and board of directors justified their approval of a new owner's loan of NIS 25 million to Ma'ariv as being in investors’ interest.

Psagot requested an explanation of how this new loan would affect the ability of Discount Investments to meet its own financial obligations. In particular, Psagot wanted to know whether Discount Investment's board of directors considered alternative investment options beside an owners' loan, for example buying back Discount Investments’ own corporate bonds, which could yield a significantly higher return on investment than a loan to Ma'ariv.

Psagot further pointed out in its letter that Ma'ariv was not capable of independently financing its ongoing operations, despite Discount's previous NIS 140 million investment in the company.  This was in addition to two owner loans arranged between Discount and the company totaling NIS 100 million and despite Discount's additional purchase of series D bonds in the amount of NIS 50 million from Ma'ariv.

Psagot pointed out that based on Discount Investments and Ma'ariv's financial reports, one of the justifications from Discount's audit committee and board of directors for issuing the loan was the lack of other sources of financing for Ma'ariv. In addition, the owners' loan to Ma'ariv has lower priority in the event of bankruptcy than Ma'ariv's bank debts. Essentially, Discount Investments shareholders and creditors understood that Discount Investments’ received inferior terms for its loan to Ma'ariv than other loans made to company.

In its letter, Psagot pointed to Ma'ariv's heavy losses, totaling NIS 321 million from the beginning of 2009 to the end of the first quarter of 2012, and said that despite its attempts to institute cuts, Ma’ariv’s financial situation doesn't seem to have improved significantly.

Psagot also pointed out to Erel that it had not received any response to its previous letter addressed, despite Discount Investments’ recent announcement and Ma'ariv’s report to its board of directors that the withdrawal of the remaining NIS 15 million from the NIS 25 million owners' loan had been authorized by Discount Investments.

Ma'ariv also noted in its board report that despite its receipt of the remainder of the NIS 25 million loan, it would still need additional funding soon to finance current operations and that the availability of such funding was uncertain.