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Israel’s Delek Group Must Finally Be Freed From Its Feckless Main Shareholder

Yitzhak Tshuva's dangerous, leveraged purchase of Chevron’s North Sea fields is only one of many problems over two decades

Eran Azran
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Leviathan rig in the Mediterranean, run by Noble Energy and Delek
Leviathan rig in the Mediterranean, run by Noble Energy and Delek Credit: Amir Cohen, Reuters
Eran Azran

A 16-page document that the Delek Group’s bondholders have sent to the company leaves no doubt: Yitzhak Tshuva should immediately lose control of the oil-and-gas-heavy conglomerate.

Delek’s actions suggest that its plight under Tshuva is only worsening, as are the chances that the group will pay off a significant chunk of its 6 billion shekels ($1.7 billion) in bondholder debt.

After two decades during which Tshuva managed to manipulate many of the institutional investors, they’re finally saying that enough is enough. There are plenty of reasons for this, reasons that have helped send the stock down around two-thirds this year, though the share rose more than 8% Wednesday in volatile trade.

The reasons include the debt settlement at subsidiary Delek Real Estate, which forced Israel’s pension savers to take a 65% haircut; the ugly battle against the Sheshinski committee, which set Israel’s royalties for the exploitation of natural resources; and the efforts to maintain Israel’s natural gas monopoly.

The list also includes the inflated natural gas prices; the sale of Tamar Petroleum to the public in an initial public offering that caused billions of shekels in losses; and the dangerous, leveraged purchase of Chevron’s North Sea fields.

A Delek filling station.Credit: Eliran Avtial

The bondholders’ representatives say the Delek Group and its executives have committed gross infractions including not reporting violations of bank debt totaling hundreds of millions of dollars, and releasing a cash-flow picture that doesn’t jibe with the situation at the subsidiaries.

This list also includes the preference given to guaranteed creditors (banks) while severly damaging the bondholders. Plus there are concerns that the board and executives are prioritizing the interests of the controlling shareholder, Tshuva, despite their commitments to the company.

The bondholders believe they have justification for demanding that the debt be immediately repaid, in part because Delek’s credit rating is now “repayment failure at a high level of certainty,” according to the rating agency Midroog.

Meanwhile, the bondholders have a right to demand immediate repayment, mainly due to Delek’s actions that favored the guaranteed creditors at the expense of the bondholders amid the alleged secret transfer of assets – cash, shares and collateral – worth billions of shekels.

The plan Tshuva proposed, a mini “debt settlement,” includes two fundraising rounds in the next two years totaling 130 million shekels a year. But that’s nonsense. The Delek Group needs much more money to maintain its massive debt repayment schedule, given that its subsidiaries’ worsening state can no longer provide significant cash flow.

Tshuva’s plan, which isn’t expected to significantly help the bondholders, reveals the extent to which Tshuva is no longer able to take the group forward.

Given this state of affairs, there’s nothing left for the bondholders but to turn to the courts and hope they’ll be paid back around 30% to 50% of the debt over the coming years. And Tshuva needs to enter history, fast.

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