Bezeq said Sunday it may write down as much as 2.1 billion shekels ($599 million) in the second quarter from its mobile telephone and satellite TV units, far more than it signaled earlier, sending its shares down as much as 7%.
Israel’s largest telecommunications group said in a statement to the Tel Aviv Stock Exchange that it would write down the value of mobile unit Pelephone by 951 million shekels, “resulting in a decrease in the company’s net income and shareholders’ equity.” Bezeq said Pelephone’s board had approved second-quarter results, including a 1.2 billion shekel reduction in Pelephone’s value.
Bezeq separately said it may have to write down an additional 1.2 billion shekels for the cancellation of a deferred tax asset at satellite TV operator Yes, after the Israel Securities Authority told Bezeq conditions for the tax benefit stemming from Bezeq’s merger with Yes were not met.
“If the write-off is carried out, this will be an accounting write-off only without any direct impact on the company’s current cash flow forecast,” Bezeq said.“The accounting write-off in and of itself does not impact directly on the chances of the use of the tax asset in practice.”
Last month Bezeq had provided an initial assessment for a write-down of up to 1.1 billion shekels. The latest development sent its share price plummeting to close at 2.26 shekels, a loss of 5.4% for the day. Bezeq shares have fallen 40% this year.
The company had been set to issue second-quarter results Monday but has postponed them to Thursday to have time to discuss the ISA’s concerns over the tax asset.
The company in May reiterated it expected to post net profit of between 900 million and 1 billion shekels for 2019.
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Amid fierce competition, Pelephone’s net profit slid 78% to 2 million shekels in the first quarter, with its subscriber base falling to 2.22 million from 2.55 million at the end of 2018.
Yes has also struggled amid competition from internet-based TV providers, which offer services at less than half of what Yes charges. It posted a 50 million shekel loss in the first quarter. Bezeq acquired control of Yes in a 2015 deal with its then-controlling shareholder Shaul Elovitch. The deal is now the focus of a ISA investigation that alleges Bezeq paid an inflated price for the company. Elovitch subsequently lost control of Bezeq and related companies under the weight of unpayable debt.
Since he took over as chairman in April 2018, Shlomo Rodav has written off some 4.3 billion shekels to 747 million at the end of March. That has reduced its shareholders’ equity of 3 billion shekels. If the company posts a 300 million shekel profit in the second quarter (similar to what it earned in the first) and it shows a few hundred million shekels of profits from property sales, Bezeq could end up with negative equity of at least 750 million shekels.
Negative equity would not violate the terms of its bank loans and allow creditors to call in debt . However, it would mean that shareholders would not receive dividends for at least the following year. As it is, the board suspended all payouts at the start of 2019 amid mounting financial troubles.