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Last update - 01:34 07/10/2008 Delek Group may shake off Delek Real Estate thru spinoff By Michael Rochvarger Spurred by the negative sentiment in the stock market generally, and the rout among real estate stocks particularly, Delek Group is mulling ways to ease the burden of carrying Delek Real Estate as a subsidiary. The team at Delek Group, owned by energy and property magnate Yitzhak Tshuva, is considering the legal and financial ramifications of turning Delek Real Estate into a sister company rather than a subsidiary. It would be done by a distribution of dividends in kind, namely, distributing shares of Delek Real Estate to Delek Group stockholders. Advertisement The move would be good news for Delek Group and its shareholders. It would relieve the parent company of some NIS 20 billion in liabilities, for one thing. The sheer weight of Delek Real Estate is one of the reasons Delek Group's stock has tumbled 70% in the last year, losing NIS 9 billion in market capitalization. For bondholders of Delek Real Estate, the move changes nothing. In any case, the spin-off has to receive approval from shareholders at both companies. Regarding Delek Real Estate, investors fear its heavy leverage and need to recycle debt in these troubled times. Much of the company's operations are in countries such as Britain, which like the United States, is in the throes of a full-blown credit crunch, and where property prices are falling. The result is a significant drop in Delek Real Estate's shareholders equity, which at the end of the first half had fallen to NIS 2.3 billion. Delek Real Estate had carried out massive acquisitions through borrowing as much as 80% to 90% of the financing for each transaction during the boom years. At the end of June, its assets portfolio amounted to NIS 26.5 billion, but after the markets pulled back, Delek Real Estate's stock crashed, losing 63.5% in the last year. Its bonds are trading at junk yield levels of 30% to 50%. Delek Real Estate hasn't sat back. In recent days it has returned a NIS 710 million loan to Merrill Lynch by borrowing more than NIS 400 million from Delek Group, Bank Hapoalim and its own subsidiary Delek Global Real Estate. Nor was Delek Real Estate's image helped by the Jelmoli affair. The Israeli company and real estate investor Igal Ahouvi pulled out of a deal to buy 90 assets in Switzerland from Jelmoli for NIS 12.3 billion. It would have been the biggest property deal in Israeli history, and Jelmoli sued for breach of contract. The fiasco wound up costing Delek Real Estate about NIS 100 million. The flotation of Delek Global Real Estate brought no comfort either. That company's stock has plunged 72% since its initial public offering in April 2007. No comment could be obtained from Delek Real Estate chief executive Ilik Rozanski as of press time. Meanwhile, speaking from London on Army Radio yesterday, Rozanski clarified: "All our assets in Britain remain strong and stable. No tenant has left and no checks have bounced." It's impossible to predict how long the crisis will last, Rozanski and analysts say, but Delek Real Estate's properties are prime ones leased for periods of 16 to 20 years, and the loans it took bear fixed interest. Moreover, its properties are in the best areas of London, Frankfurt, Montreal and Toronto and are producing steady cash flow, Rozanski added. Asked about the crash of Delek Real Estate's stock, Rozanski said: "I manage a company, not a stock. I have to run a business, produce returns and results. I'm not responsible for investors." On the company's liquidity, Rozanski said: "We had a billion-shekel loan that we had to give back to Merrill Lynch within days. Merrill said it couldn't raise the money, and within 10 days, we raised a billion shekels. If that isn't strength, what is?" He noted that the money came from Delek Real Estate's own cash, bank loans and loans from the parent company Delek Group. "We sold three assets for a good price in Israel," Rozanski said. Bookmark to del.icio.us   Asleep at the wheel Sharon told 1973 probe that IDF top brass was clueless in Yom Kippur War. Laughing at Hitler Clips parodying film The Downfall make their way onto the Web.

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