Israel's No. 1 Bank Takes Little From the Big Boys

Bank Hapoalim finds itself overexposed to leveraged credit and making nice with troubled tycoon borrowers.

“Being first takes a lot” – that’s Bank Hapoalim’s slogan translated from Hebrew. Indeed, the bank has a finger in virtually every large deal cobbled together in the country. Consequently, the bank has a relatively high degree of exposure to Israel’s elite business community, aka “the tycoons.”

At the end of 2012, Bank Hapoalim’s exposure to leveraged credit (in other words, loans taken to buy up other companies) was NIS 17.9 billion. For the sake of comparison, Bank Leumi’s exposure during the same period stood at NIS 3.7 billion.

Hapoalim is also highly exposed to other loans to major players. At the end of March 2013, three borrowers alone (Ofer, Dankner and a third group) owed Bank Hapoalim NIS 24 billion, equivalent to 51.6 percent of the bank’s capital. The management seemed to realize that this exposure was too risky, and therefore has, since then, been trying to whittle it down. Meanwhile, Leumi is exposed only to the Ofer Group with NIS 7.5 billion, representing a mere 18 percent of the bank’s capital.

In the past, leveraged buyouts have generated handsome profits for the bank. But trouble strikes in periods of economic slowdown, when clients are having trouble keeping up with their payments. This is the time to minimize damage.

Big headache, courtesy of Zisser

The client who caused Hapoalim’s management the biggest headache of all is Motti Zisser, owner of Elbit Imaging, who is currently unable to repay a personal debt of some NIS 1 billion to the bank.

Formally, the debt is that of Elbit Imaging’s parent company, Europe Israel, owned by Zisser. Elbit Imaging, too, is having trouble covering a NIS 300 million debt to the bank and NIS 2.5 billion to shareholders. Despite the sureties held by the bank, the bank is liable to take a hit of hundreds of millions of shekels.

This coming Sunday, Tel Aviv District Court will hear Hapoalim’s petition to have Europe Israel’s debt settled immediately and assume shareholding control (48.4 percent) of Elbit Imaging.

Lenient line with Dankner

Another problematic Hapoalim borrower is Nochi Dankner, whose Tomahawk Investments owes NIS 150 million to the bank. EDB Development, which Dankner controls, received unsecured credit of some NIS 900 million from the bank.

The debt has already been refinanced and the company received a break on its financial covenants. The Bank of Israel is apparently investigating how and when credit was extended to companies in the Dankner Group.

Bank Hapoalim is IDB Development’s biggest creditor and as such is taking a lenient line. Hapoalim is willing to spread the debt over 18 months in exchange for interest and company shares. But what about Tomahawk’s debt, which was supposed to be personally secured by Dankner? Bank Hapoalim isn’t saying.
Hapoalim takes a lenient line also with regard to others. This week it emerged that the bank agreed to defer a debt of NIS 300 million owed by Israel Petrochemical Enterprises to January 2017 in exchange for company shares.

At the beginning of 2011, the bank also met halfway Yossi Grunfeld, a controlling partner of Kardan NV, and spread his personal debt of NIS 100 million or so in exchange for upping the securities. And in 2012, the bank led a consortium that spread Isralom’s debt of several hundreds of millions of shekels.

Successes in collecting problematic credit

In recent years, Bank Hapoalim has also chalked up some successes in collecting problematic credit. At the end of 2009, the bank found itself exposed to about NIS 2 billion because of a debt owed by Memorand, through which Lev Leviev controls Africa Israel. At the time, Africa Israel was enmeshed in a debt arrangement of some NIS 8 billion involving shareholders and banks. Hapoalim led the debt arrangement with Leviev made by Israel’s five banks, which spread part of the debt in exchange for which Leviev increased the securities, paid hundreds of millions of shekels, and even deposited some early payments. The bank’s current exposure to Leviev is estimated to be NIS 1.3 billion.

Another example of problematic credit involved the NIS 600 million the bank lent to the Bronicki family for buying shares of Ormat Industries as part of the family’s fight to retain control of the company. Bank Hapoalim got out from under this heavy credit only when the FIMI Fund decided to invest in the company, buying Ormat shares from the Bronickis for about NIS 400 million. The rest of the loan was repaid through Ormat dividends.

Nir Kafri
Ofer Vaknin