Jerusalem Real Estate Deal Gone Sour Leaves Bank Leumi Out $390 Million

The agreement to sell Eliezer Fishman’s financially troubled Jerusalem Economy Corporation to the Nakash brothers collapsed Wednesday.

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Pedestrians are reflected in the windows of a Bank Leumi branch in Tel Aviv in this May 30, 2013. Credit: Reuters

An agreement to sell Eliezer Fishman’s financially troubled Jerusalem Economy Corporation to the Nakash brothers collapsed Wednesday, sending shares of the real estate developer tumbling and leaving Bank Leumi, Fishman’s chief creditor, without means to recover any of the 1.5 billion shekels ($390 million) he owes it.

Late Wednesday JEC confirmed reports, circulating since Tuesday night, that the Nakash brothers were backing out of the acquisition. The reports had caused JEC shares to plummet 29% on the Tel Aviv Stock Exchange to end at 7.60 shekels, leaving the company with a market capitalization of just 616 million shekels.

“The buyers informed the bank that they are retracting their offer after they deemed the transaction not worthwhile and due to other claims made by the buyers, which the bank’s counsel has termed ‘false,’” JEC said in a statement to the TASE.

Leumi had been in talks since the summer with brothers Joe, Rafi and Avi Nakash, who earned their fortune with Jordache jeans, to sell them Fishman’s 40% controlling stake in JEC. Fishman has put up the stock as collateral against his private debt to the bank, some 1.5 billion shekels.

The sale was supposed to be completed by November 15, and 90% of the required approvals had been obtained. The two sides traded accusations Wednesday, each saying the other was responsible for the deal’s collapse.

JEC said in the statement that Leumi regarded the Nakash brothers’ step as a fundamental violation of their agreement and had given them until noon Wednesday to reconsider. Nakash’s lawyers countered by saying their clients were pulling out because they had discovered a clause that entitled a third party jointly owning what they described as a “key asset” to buy the JEC stake.

Without the asset, which wasn’t identified, there was no reason to acquire JEC. Just after 4 P.M., JEC put out its statement confirming that the agreement had collapsed. Nevertheless, according to the JEC statement, the Nakash attorneys held out the possibility of a resolution.

Leumi executives, speaking on condition of anonymity, expressed rage at the brothers’ actions, comparing them to hawkers in Tel Aviv’s main open-air market.

“The Nakash group is behaving like stall owners in the Carmel Market. That’s how you act when you really don’t plan to complete the deal but think you can play around and take an option at our expense. It’s unprofessional behavior and they’ll pay for it,” said one banker, who asked not to be named.

In fact, there were already signs of trouble last week when sources said Joe Nakash arrived in Israel and held three marathon meetings with Leumi bankers, during which sources said he demanded easier payment terms.

Under the agreement, the Nakash brothers and a group of other investors would pay Leumi about 370 million shekels over the next two years to cover Fishman’s debt. Since the bank had already written off 1 billion shekels of what Fishman owed, it would have been able to post a small recovery on it had the Nakash group made the promised payments.

Instead, Leumi is expected this week to ask a court to put the Fishman investment vehicle that controls his 40% JEC stake into receivership. The Nakash brothers’ pullout is also bad news for JEC, which was counting on their cash injection to help it repay the 1.9 billion shekels it owes bondholders.

The collapse of the ruble and Russian recession has hit JEC’s Russian portfolio hard. Losses at the company’s Mirland Development Corporation and Sweetland subsidiaries have forced JEC to write off 700 million shekels over the past year. It may need to write off an additional several hundred million shekels in the future.

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