Fishman’s Jerusalem Economy Stake Going to Nakash Brothers

Jordache jeans owners step in for Steinmetz, who backed out of 350m shekel deal.

Eliezer Fishman
Ofer Vaknin

After Bank Leumi ran into last minute difficulties in selling a controlling 40% stake in Jerusalem Economy to diamond mining magnate Beny Steinmetz for 350 million to 400 million shekels ($89 million to $102 million), the stake in the company has been snapped up by the Nakash brothers, the owner of the Jordache jeans brand, for 350 million shekels.

In the wake of the news, shares of the company soared Sunday on the Tel Aviv Stock Exchange, closing up 22.2%.

Leumi’s interest in Jerusalem Economy was pledged as collateral that the bank gave to Eliezer Fishman, the longtime controlling shareholder of the company, which has real estate holdings in Eastern Europe and North America in addition to Israel. The sale to a company controlled by the Nakash brothers, who have also committed to inject an additional 250 million shekels into the publicly traded company, follows threats by Bank Leumi to file receivership proceedings against Fishman, who owes the bank about 1.5 billion shekels.

Steinmetz had committed to injecting an additional 200 million shekels under the early proposed sale, and the bank was to provide about 150 million in a credit line in return for secured interests. Associates of Steinmetz said, however, that due to remaining gaps in the positions of the two sides, he advised the bank over the weekend that he would not be proceeding.

Jerusalem Economy is due to release its second quarter earnings reports Monday, at which time it will be known whether JEC’s accountants, Ernst and Young Israel, have appended a “going concern” warning to the results, indicating that they had substantial concerns over the ability of the company to remain in business and meet the billion shekels or so in debt that the company is obligated to repay bondholders by June 2017.

The fall of the ruble vis-à-vis the U.S. dollar has had major negative effects on JEC’s business due to its involvement in the Russian real estate market through its Mirland Development Corp. and Sweetland subsidiaries. As a result of losses at the subsidiaries, JEC has written off 700 million shekels over the past year and may need to write off an additional several hundred million in the future.

On Thursday, Industrial Building Corporation, which is also controlled by JEC, said that between the third quarter of last year and Thursday of last week, the 15% devaluation of the ruble against the dollar had reduced the company’s capital equity by 60 million shekels.

Following the approval about a week and a half ago by the board of directors of Bank Leumi of the sale to Steinmetz, it was assumed that the deal would close last week. The turmoil on global stock markets last week did not spare Jerusalem Economy’s shares, which fell by 9%. The market instability also affected Steinmetz’s assets abroad, and against the backdrop all of these sudden changes, Steinmetz decided not to move ahead.

“Steinmetz chose not to carry out the transaction on the terms proposed by Leumi and accepted by the Nakash family,” a spokesman for the diamond magnate said. “Jerusalem Economy is a good company that owns good assets. Steinmetz wishes the Nakash family success, for the benefit of the company’s creditors and shareholders.”