After months of fruitless efforts to reach a bailout, Tel Aviv District Court Judge Eitan Orenstein ordered Shaul Elovitch’s Eurocom Communications be put into liquidation and its sister company, Eurocom Real Estate, into receivership.
The move means that the group, whose flagship holding is Israel’s biggest telecommunications company, is likely to be broken up and sold off.
However, Eurocom Communications bank creditors asked the court to delay the orders for 10 days in the hopes of reaching an agreement with Eurocom Real Estate’s creditors, who hold liens on two key assets – a 55% stake in the publicly traded satellite company Spacecom and 37.5% of the real estate developer Midtown.
Once one of Israel’s most powerful tycoons, Elovitch began encountering problems last June when Israel Securities Authority investigators opened a probe into securities violations and in November recommended he be indicted. Elovitch and Bezeq are also caught up in a police probe into allegations of illicit dealings between the company and the Communications Ministry.
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The investigations caused the share prices of the Eurocom group’s publicly traded companies to collapse, leaving creditors exposed to 1.9 billion shekels ($540 million) in bad debt. Eurocom Communications’ biggest creditor is Israel Discount Bank (800 million shekels), followed by Bank Hapoalim (600 million) and First International Bank (200 million).
In addition, Mizrahi Tefahot Bank leads a consortium of lenders that are owed 250 million shekels by Eurocom Real Estate.
On Sunday, stock market investors reacted favorably to the news. Shares of Internet Gold, a holding company that controls Bezeq through its B Communications unit, closed up 1.8% to 13.40. B Com shares rose 2.55% to 42.28. Analysts said it would be easier for creditors to find buyers for the group’s companies than to sell them together through Eurocom Communicatiions.
Eurocom Communications creditors face a risk that Internet Gold’s bondholders may use the upcoming liquidation order to seek early redemption of the 800 million shekels in debt they are owed. That is because liquidation and the appointment of a receiver would be tantamount to a change in ownership, giving the bondholders the right to demand immediate redemption.
Orenstein issued his order, acknowledging the risk. “I’m aware of the situation and claims of Internet Gold bondholders in the event of a change in control, but we shouldn’t be alarmed by this,” he told the court.
Orenstein on Sunday named three attorneys as special administrators for Eurocom Communications pending formal liquidation May 3 – Pini Rubin for Hapoalim, Amnon Lorch for Discount and Ori Gaon for FIBI.
Chagai Ulman was appointed receiver for Eurocom Real Estate assets and Ronen Matry was named special administrator for DBS, to which Eurocom owes 100 million shekels.
The two bidders who had previous failed to reach an agreement with creditors on Friday submitted last-minute revised offers to bail out Eurocom Communications, but they were rejected by the banks.
“The offers that were received included conditions that practically speaking made it impossible to act on them, so from our viewpoint they were not real,” said Lorch. “Also, they gave us the proposals on Friday afternoon and expected the banks to review them over the Sabbath, which is not an ordinary work day. It was not realistic from our point of view.”
Amir Bartov, who represents Nati Saidoff, the U.S.-Israel real estate entrepreneur whose bid came closest to winning approval, said in response that Lorch’s characterization of the last-minute offer was incorrect and that the parties had been in contact before last Friday.
Erez Haver, an attorney for other bidder, the Neuman group, said his client was willing to limit the number of conditional items in the offer and enter into negotiations. “If the company [Eurocom Communications] goes into liquidation, the value of the Internet Gold shares will be harmed.”
Orenstein rejected an effort by Hapoalim to force Saidoff to keep to his original debt-bailout proposal for Eurocom Communications. Saidoff dropped his offer in March after objecting to changes in Bezeq’s governance that would have deprived him of control of the company.