Zisser offloads assets in bid to shrink yawning debt
The controlling owner of Elbit Imaging hopes for a European economic recovery - and lots more.
Businessman Moti Zisser has sealed some high-profile deals in recent weeks, but the controlling owner of Elbit Imaging still has a long way to go to pay off his debts.
On Thursday he completed, via Elbit Imaging and his partners, the sale of 47 shopping centers in the United States for $1.43 billion; the buyers were U.S. private equity fund Blackstone and DDR, a company that owns and manages retail shopping centers.
In addition, after a financial dispute that lasted over a year, Zisser is expected in the coming weeks to finalize the restructuring of Europe Israel's debts to Bank Hapoalim totaling NIS 750 million to NIS 800 million. Europe Israel is Elbit Imaging's parent company.
These developments gave Zisser some confidence, so he began talking to the media at the end of last week. "Elbit Imaging is the only Israeli company with which Blackstone has done business," he said. Who else, he asked, has done a $1.5 billion deal with Blackstone? And he sounded smug when he said Elbit's U.S. success would be repeated in India.
Zisser deserves praise, because in such a stormy market he has sealed a big transaction. The deal is providing Elbit free cash flow of $90 million, as well as $120 million to its subsidiary Plaza Centers. Still, it seems this transaction has only marginally improved his dealings overall. And he seems to have forgotten a bunch of things.
For example, Zisser forgot to mention his partners in EPN who were also in the deal: the fund Eastgate Partners (45.4% ) and Menora Insurance. He also failed to explain that Elbit directly holds only 22.7% of EPN, while its partly-owned subsidiary Plaza Centers owns another 22.7%. So Elbit effectively owns around 36% of EPN, which translates into only $515 million.
It seems to have escaped Zisser that he isn't the only Israeli who has done business with Blackstone. In September 2011, Equity One, the U.S. subsidiary of Gazit-Globe, took part in a giant deal when it sold Blackstone 36 properties for $500 million. And several months earlier Lev Leviev's Africa Israel sold Blackstone the upper stories - floors 5 to 16 - of the New York Times Building for $160 million.
Shaky times in India
Granted, Zisser is among the first and biggest Israeli entrepreneurs in India. But he sounds too optimistic. After five years in India, and despite the huge knowledge he has gleaned, he hasn't succeeded there.
Plaza Centers operates a few isolated rental properties in India, but a project to establish dairies and hospitals hasn't been implemented. Some NIS 903 million has been invested - NIS 487 million by Elbit Imaging and the rest by Plaza Centers - which entails significant interest costs. Elbit Imaging is hoping that, starting in 2013, the huge residential projects it's developing with Plaza Centers will finally gain momentum.
These projects will let it enjoy annual cash flows of at least NIS 100 million, but its Achilles' heel is meeting the project's schedule. Zisser also forgot to mention the faltering retail activities it entered in 2005 by acquiring the Mango Fashion and Gap franchises in Israel. Zisser sold Gap to Zara for NIS 40 million, and Mango is also for sale.
The medical operations, which are being carried out by partly-owned subsidiaries InSightec and Gamida Cell, involved an investment above $100 million over several years, and are still far from profitable.
Zisser also didn't bother to explain that Elbit's net asset value is at around zero. He also failed to mention that Plaza Centers - considered a keystone for Elbit's recovery - is trading at around 70% below its book equity, which was valued at 550 million euros at the end of March. He also didn't mention that a recovery in the European economy appears necessary for a share-price rise.
In the last two years, Bank Hapoalim CEO Zion Kenan and the head of its corporate banking division, Shimon Gal, discovered that even though Zisser was a respected client, he was behind on his payments and hadn't kept his promises. Since they realized it wouldn't be wise to take over Elbit Imaging, Kenan and Gal left Zisser in charge, but it's not clear they'll leave Zisser in charge if he stumbles again.
Meanwhile, after repaying an overdue obligation of about NIS 100 million, Zisser will get a grace period of two years for repaying his debts. After that he'll make annual payments over seven to eight years of NIS 50 million. At the end of the period he'll make a single payment of NIS 450 million.
Hapoalim, which has already written off most of the debt, will get a higher interest rate and collateral on Zisser's holdings in high-tech company Asigra, whose value is estimated in the hundreds of millions of shekels. Hapoalim will also benefit from the revenues from Zisser's hotel sales in Europe.
Zisser also claimed that while his personal obligation to Bank Hapoalim slightly clouded matters, nothing had happened to Elbit Imaging, and the company isn't asking anything from anyone. Even if we accept Zisser's claim that from an operational standpoint little had happened to Elbit, we have to admit that the company ran into serious financial problems - even if it's now restoring the market's trust.
After the company revealed in May 2011 its conflict with Bank Hapoalim, its stock has plunged more than 70% to a paltry market value of NIS 227 million. And its NIS 2.5 billion or so in bonds continue to be traded at junk yields of 30% to 65%.
It appears the cash Elbit is receiving from its asset sales will be enough to let Elbit pay the NIS 1.5 billion it must repay by the end of 2013. After that, it will have debt of NIS 1.5 billion.
If the bond yields don't decline to single-digit levels, which would allow it to refinance its debt, and if there isn't a recovery in Eastern Europe, the company could face big problems.