A creative deal devised for transferring control of Partner Communications was blasted from all sides by the Knesset's Economic Affairs Committee this week.
Taking its turn in the committee's hot seat - in a series of hearings on the wave of debt restructurings plaguing the capital market - the proposed deal involves the sale of the 80% stake held in Scailex, Partner's parent company, by Ilan Ben-Dov's Suny Electronic to Hutchison Whampoa of Hong Kong.
One facet of the deal is the redemption of 50% of Scailex's bonds at a price reflecting a 30% haircut worth at least NIS 250 million while, according to the company, the remainder will be repaid in full. "This is not a haircut but a scalping," said MK Dov Khenin (Hadash ).
At the end of the special meeting on Wednesday, the chairman of the session, MK Carmel Shama-Hacohen (Likud ), called on Ben-Dov to forfeit part of the proceeds from Hutchison to avoid a haircut on the public's funds.
"Had Ben-Dov surrendered half his proceeds in favor of the bondholders there wouldn't be a haircut and debt holders would receive all their money," Elior Gabay, deputy commissioner of capital markets at the Finance Ministry, said at the session.
Last week TheMarker revealed that, in an unusual move, the treasury's commissioner of capital markets, Oded Sarig, addressed a letter to institutionals challenging them to react to the deal.
"The institutionals are aware of the problem and intend to act resolutely to protect investors' money. No institutional has expressed support for the arrangement," said Gabay.
The problem with the deal, claimed Gabay, is that it contradicts conventional norms that bondholders retrieve all their debts from financially troubled companies before any excess profits or proceeds are distributed among owners.
"At the same time it's known the creditors won't get all their money, the controlling owner is coming out financially compensated and getting his hands on company funds by selling it to a third party," he added.
"The proposed haircut is 15%," said Scailex CEO Yahel Shachar at the session, implying the 30% reduction on half the bonds. "Financially, this is a reasonable discount. It may be painful, but you always need to look at the alternatives. "
The $125 million inproceeds that Ben-Dov willl receive]is supposed to go toward servicing Suny's debt, Shachar said. From his personal standpoint, Ben-Dov, is losing all his shares in the company.
"The deal was actually dictated to us and is more the prerogative of the side tendering the offer than ours," Shachar explained.
"We understood that we needed to bring in a strategic partner to help us weather the changes we were going through. For half a year we called on investment banks and dozens of global and strategic companies. We couldn't find another partner so the deal with Hutchison arose. This enormous company is investing $125 million of its money here and is ensuring continuity. We are talking about putting off $300 million in debt for five years instead of two. "
Ultimately, the ones who will be determining whether there will be a deal are the bondholders, pension funds and minority shareholders, Shachar said. "They can weigh the pros and cons."
At the end of the meeting, Shama-Hacohen said: "The deal signifies a new style of haircut. It turns out that the controlling shareholder's purse was put before the purse of the public to whom he must return the debt. The deal lacks sensitivity toward the public's funds and adjustments are needed."
The institutionals, who extended Ben-Dov the credit he needed in 2009 when his other company, Tao Tsuot, was already know to be in trouble, weren't in attendance.
According to market gossip, Ben-Dov and his people have been sounding out the institutionals to try to find a formula for closing the deal, and even suggested various ideas to Hutchison like selling Partner directly rather than Scailex, but it's not at all clear that the Hong Kong company will respond.
Meanwhile the Scailex bondholders meeting scheduled for Sunday has been postponed until June 28, after Psagot Investment House - the company's largest bondholder with NIS 165 million - accepted the stance of the other institutionals: that it would be better to receive more than NIS 150 million in principal and interest payments from Scailex at the end of the month before appointing representatives for talks with Ben-Dov.
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