Alon Blue Square asked the Central District Court on Monday to reschedule some 700 million shekels ($185 million) of suppliers’ debt for its Mega supermarket chain.
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The company asked the court to call a meeting of creditors – including not only the companies that stock its shelves, but also its landlords and bank lenders – about a plan to spread out repayment of Mega’s debt and ease current payment terms.
“We have to take this approach in order to reach an arrangement with all these groups,” said Alon Blue Square CEO Avigdor Kaplan. “I want to stress that we are talking about a change in the repayment schedule for debt and rescheduling, and not about canceling debt.”
The petition comes just a week after Alon Blue Square reached a deal with the Histadrut labor federation that calls for closing 32 Mega stores, firing 1,000 of its 6,000 staff, and making 35 million shekels in pay cuts. In return, workers will get a 33% stake in Mega and seats on its board of directors.
The court won’t respond to Alon’s petition until Wednesday. Nevertheless, investors were nervous about the supermarket chain’s business, with many suppliers saying they had already stopped deliveries while others were considering doing so. Shares of Alon Blue Square dropped 7.3% to 9.10 shekels in Tel Aviv Stock Exchange trading.
Among suppliers who have already stopped deliveries to Mega supermarkets are Osem, Tempo and Guri, as well as a host of small- and medium-sized suppliers. Osem is owed 60.6 million shekels, making it one of Mega’s biggest creditors.
Others are waiting for the court’s decision. Among the latter is Tnuva, Israel’s biggest food manufacturer, which is owed 105 million shekels. Strauss Group, the No. 2 food company and holding 68.5 million shekels in Mega debt, was undecided as of Monday.
Many smaller manufacturers and importers had already cut off the supermarket chain.
“We stopped supplying merchandise to Mega two weeks ago, because we saw what was happening,” said one medium-sized supplier, who asked not to be identified. “Mega promised me all kinds of things they didn’t make good on, like paying faster in exchange for deeper discounts.”
Israel’s second-largest food retailer, Mega has been hit hard by the rise of price-conscious shopping that has led to an onslaught of discount-supermarket competition. It posted a loss of 436 million shekels in 2014, with another 87-million-shekel loss in the first quarter of this year. Over the last four years, it has accumulated losses of 762 million shekels.
Mega’s suppliers are trapped between two business considerations: letting Mega’s debt to them grow and accepting they may never get their money back; or letting Mega collapse as shoppers abandon the retailer for lack of products on its shelves.
On Monday, Mega CEO Raviv Brookmayer urged suppliers to cooperate and let the company conduct business as normally as possible. “I don’t see any interest on the part of suppliers in letting Mega fail and creating upheaval in the retail sector,” he said.
Mega will be asking its biggest suppliers, who hold 60% of its debt, to reschedule the debt in two parts, initially suspending repayment for about three months and then repaying over five years. Mega is asking its landlords to allow it to pay rent on supermarkets on a month-by-month basis rather than three months in advance. Smaller suppliers, owed 1.5 million shekels or less, will be paid on time, it said.