Hapoalim Snags Mega Rescue, Demands Owners Inject Cash

Bank makes opposition clear after suppliers give backing to debt rescheduling.

Ofer Vaknin

The fate of Mega, Israel’s second-biggest supermarket chain, hangs in the balance again after Bank Hapoalim on Monday threw a wrench into its plan to reschedule 1.3 billion shekels ($340 million) in debt.

Earlier on Monday, Mega had tentatively reached an agreement with its suppliers, who hold slightly more than half the debt. But a separate meeting of its bank creditors ended without a vote, and last evening Hapoalim made clear its opposition to the plan.

“To the bank’s regret, the creditor agreement proposed by Mega doesn’t provide an answer to the needs of Mega, its employees or creditors,” Hapoalim said in a letter to Alon Blue Square, the publicly traded company that controls the food retailer.

The bank, which is owed 300 million shekels, making it the biggest single creditor, said it wanted Shraga Biran, David Wiessman and the kibbutzim that control Mega through Alon Blue Square to inject some 500 million shekels into the ailing supermarket chain. Without the injection, Mega would not be able to turn itself around and the bank would not sign on the debt rescheduling, it said.

Hapoalim also demanded that some mechanism of supervision be installed by the creditors over Mega’s management.

Mega has been struggling to reach an agreement with creditors, which include not only banks but landlords, food manufacturers and importers that stock its shelves. Squeezed by competition from discount supermarkets and a high-cost structure, Mega has been losing money for the past four years.

Last month, it reached a plan with employees to close stores and fire staff, and then turned to the courts to help it reach an agreement with creditors to delay paying debt while it tries to restore profitability. It was due to report back to the court today at 10 A.M. about agreements with creditors.

The process got off to a good start early Monday when suppliers, who are owed 675 million shekels, gave their backing to stretching out payments owed them. Eighty-eight of the 95 biggest suppliers approved the plan, as did all 154 small suppliers.

Suppliers said they were concerned that if they didn’t agree to a rescheduling, Mega would fail and they would see little of their money.

But Mega ran into some opposition from another smaller group of creditors, namely its landlords, who are owed 25 million shekels. None supported a plan for a month-and-half grace from rent, and the 66% majority that backed a 5% reduction over the next two years was short of the 75% needed. The only majority was for a clause that would allow Mega to pay rent on a month-by-month basis, rather than months in advance.

Alon Blue Square and its CEO, Avigdor Kaplan, however, were still counting on the banks to agree after the suppliers had thrown their support behind the plan and employees had made deep concessions. “At the moment, the banks are meeting and we hope we will reach an arrangement with them that the court will approve,” Kaplan had said in a statement Monday morning.

But by then Hapoalim had already signaled its demand for a cash contribution from Alon Blue Square as part of any rescue plan, and was gearing up to fight for its demands in the media. The letter to Alon Blue Square, Kaplan alleged, had been given to the media before it was given to the company.

The latter laid out Hapoalim’s case in a way evidently aimed at public consumption.

“At the head of the group that controls Mega stands Shraga Biran, a man of great wealth and means. Over the years, Biran acted to pull money directly and indirectly out of the companies in his control, which directly and indirectly increased his capital,” wrote Hapoalim’s attorney, Ronen Matry.

“Now, when the Mega chain needs help to save the workplaces of thousands of employees, he must reach into his pocket, or the pockets of the companies of those companies by which he controls Mega, and give the help that is needed,” Matry added.

The bank faulted the rescheduling terms, which would not involve any write downs, but said it would impose a three-year grace period before payments resumed. After that, 60% of the debt would be repaid over seven years and the rest in the 11th year, or 2026.

In response, a source close to Biran noted that he was neither a director nor officeholder in Mega, and received no compensation from the firm.