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The criticism voiced last week by MK Shelly Yachimovich of the huge dividends that Partner's new controlling shareholder Ilan Ben-Dov plans to withdraw from the company is now being seconded by smaller investors in the major cellular provider. The investors are concerned about how a dividend distribution of NIS 1.4 billion will affect them. A number of small bondholders are threatening to block Ben-Dov's plan.

Because Partner does not meet the distribution criteria stipulated under law, the firm will need to get court approval to do so. Bondholders who are worried that drawing this amount from the company could put their own investment at risk plan to ask the court to block the move.

Earlier this week bondholders asked Israel Securities Authority chief Zohar Goshen to intervene in Partner's distribution. In their letter to Goshen, the bondholders urged the regulator to suitably enforce careful, stringent regulation in light of the Israeli capital market's current concern over the way bond financing is provided to companies, the enormously leveraged companies that are being created, and how another "Africa Israel affair" can be prevented.

"Certainly it is necessary to ensure that the duty of transparency is scrupulously enforced," the bondholders told Goshen.

"There is a shortsightedness about this specific controlling shareholder, who just a few months ago stood before his bondholders and confirmed that he would not be able to repay the debt, but promised lots of warmth and love instead," bondholders added sourly, referring to the difficulty that Ben-Dov's Tau Tsuot had in repaying its bond debt. Notably, Tau Tsuot is currently meeting its bond debt.

Distributing debt, not profit

Attorney Ophir Naor, who represented bondholders of one of Africa Israels' bond series, is currently acting on behalf of Partner bondholders as well. Africa Israel bondholders appeared last month in press headlines after they managed to extract a relatively large portion of the funds injected into the company, even though they held only a small part of the real estate company's debt.

In an interview with TheMarker, Naor explained why the bondholders he represents are opposed to the planned distribution. "Ben-Dov already distributed NIS 300 million in dividends when he took over the company. Now he wants to distribute another NIS 1.5 billion - a move that could put the firm's stability in jeopardy. Ben-Dov takes bank debt on Partner's behalf, to distribute it to Scailex, the company through which he controls Partner, to ensure that the loan will be repaid. Dividend means distribution of profits, but Partner does not meet the criteria for excess profit. Ben-Dov is seeking to paint these dividends as profit, but what he is really doing is distributing debt, not profit," Naor explained.

"On the macro-economic level, in taking a good, stable cash cow of a company and turning it into a leveraged operation, while the firm's most recent financial reports show a 20% decline in revenues and 11% decline in EBITA [earnings before the deduction of interest, tax and amortization expenses], Ben-Dov is creating a company that is far more sensitive because it is exposed to large financing costs and dependent on its cash flow, out of a company that used to be strong and stable," Naor says. "For bondholders, who had been the first in line for repayment with a debt of NIS 1.8 billion, these now become subordinated by the banks. The bondholders' case against the distribution is that that the leveraging jeopardizes their position."

The bondholders are also seeking the regulators' intervention over Partner's lack of transparency in its reporting. The cellular company announced, for instance, that it has contracted with leading banks as part of the plan to distribute dividends, to obtain a NIS 1.5 billion credit line, but has provided no further details on the nature of its contract with the banks, making it difficult evaluate the move.