Israeli media outlets reported last week that billionaire U.S. businessman Kenny Rozenberg, whose son Eli Rozenberg acquired a controlling share in Israel’s flagship carrier El Al last year, has immigrated to Israel.
While Rozenberg Sr. may have acted on an uncontrollable Zionist impulse, it’s thought to be more likely that he made the move in order to qualify for a control permit for El Al and closely monitor the company.
After all, Rozenberg has spent $155 million to date to bail out the financially troubled airline, but the coronavirus pandemic that brought it to its knees doesn’t show any sign of easing anytime soon.
Even before he officially becomes the airline’s owner, Kenny Rozenberg had already begun playing the role. This is how it works.
Kanfei Nesharim, the holding company through which Eli Rozenberg controls El Al, operates according to the rules laid down for his control permit. Kenny financed the company’s acquisition of a controlling 43% stake in El Al through a 359 million shekel ($109 million), 25-year loan, at 2% interest. As a condition for his control permit, Eli Rozenberg agreed not to give his father any securities against the loan, put up Kanfei Nesherim shares as collateral, give his father the right to call in the loan on short notice or enable him in any other to control El Al directly or through the holding company. In other words, Kenny made a sizable loan to a business over which he has no power over.
A long-term loan at 2% interest made in connection to as risky a business as El Al is today is, in fact, a gift – except that the terms of the loan were written in a way that it will not be regarded as one. That saves him a tax liability of 40%.
The reason for the tough loan terms is that Israeli law bars a foreign national from controlling an Israeli airline. The ban was to begin with the reason that Eli, a 26-year-old yeshiva student, became the controlling shareholder of Kanfei Nesharim, rather than his father, and during the greatest crisis the global aviation industry has ever known.
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As part of its so-called Chinese Wall policy, the Israeli government also barred anyone from serving on the board or in a management position at El Al on behalf of Kenny Rozenberg or reporting to him at the time the appointment was made or any other link with him or businesses he controls.
The last two conditions seem unreasonable and Kenny Rozenberg found a way to circumvent them in a way that raises the question of whether Kanfei Nesharim is adhering to the rules on appointments, In January, El Al hired Omry Cohen as a vice president. Until October, Cohen was a senior executive at Centers Health Care, the company controlled by Kenny Rozenberg that operates 25 nursing homes and other health care facilities in the New York region.
Cohen’s job is to ensure that the airline reduces its annual spending by $140 million (excluding salary costs), including laying off 2,000 employees, as a condition for getting a government-backed bank loan.
Cohen immigrated to Israel, resigned from Centers Health Care and has no work relation with Kenny Rozenberg, except for the fact that when he immigrated to Israel he chose, from all the workplaces available, a company controlled by Kenny Rozenberg’s son. That can’t help but leave the impression that Cohen took the job at Kenny Rozenberg’s behest, meaning Kanfei Nesharim isn’t, in fact, meeting the commitments it undertook when it won a control permit last October.
In response, El al said that “appointments at the company are undertaken in line with corporate governance rules, after an individual legal examination and in accordance with the law.
“Rozenberg’s arrival in Israel was done against the background of discussions that have been conducted in the last several days between El Al and the Finance Ministry regarding the granting of the $200 million loan to the airline. The loan will carry, estimates are, an interest rate of 8% to 10%, will be given for 10 years and will incorporate the government’s participation in El Al’s security costs, which reached $172 million in 2019.”
The loan will complement the 250 million shekels El Al raised in a warrant offering in February. Kanfei Nesharim bought 162 million shekels, or two-thirds, of the warrants, which entitle it to buy El al shares a 30 agorot each, half the price El Al shares currently trade on the Tel Aviv Stock Exchange. El Al noted that if Kanfei Nesharim exercises all its rights to the warrants, El Al will receive $73 million in new cash.