Shares of Partner Communications, Israel’s second-largest mobile communications provider, fell on Sunday amid growing speculation that the Israeli American billionaire Haim Saban was preparing to cede control of the company rather than repay a loan coming due in January.
Saban, who rose to fame and fortune with the television franchise Power Rangers, owes an estimated 1.1 billion shekels ($310 million) to Hutchison Whampoa, the Hong Kong conglomerate that helped found the company and became its co-owner in 2009.
The collateral for the loan is his 30.4% stake in Partner, which after Sunday’s share price drop is worth just 730 million shekels.
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Saban had reportedly been in talks with Hutchison, which is controlled by Hong Kong billionaire Li Ka-Shing, about extending the loan on a non-recourse basis, meaning his liability for nonpayment would be limited to the collateral he puts up. However, the two sides failed to reach an agreement.
Exiting Partner would cost Saban an estimated $175 million, not a great deal for a man whose net worth is estimated by Forbes magazine at about $2.9 billion. It would mean he would have no major business holdings in Israel.
The return of Partner to a Hong Kong company may also arouse concerns in Israel and the U.S. about Chinese control of an asset at the heart of Israel’s telecommunications network. Israel has been under growing U.S. pressure to limit the role of the Chinese in key infrastructure projects over espionage concerns.
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It is by no means clear that Israel’s Communications Ministry would award it an operating license. As a result, there is a good chance the Hong Kong company will put Partner up for sale either in the market at a discount or to a strategic investor. Some Israelis have been cited as possible buyers, as has Patrick Drahi, the French Israeli billionaire who controls the Altice telecommunications group.
Partner shares, which have been hit hard like other telecoms shares by the drop in industry profits due to the intense competitive environment in Israel, ended down 2.65% on the Tel Aviv Stock Exchange at 14.70 shekels.
Led by CEO Isaac Benbenisti, Partner has declined to comment on the reports and has not made a statement to the TASE. No one inside the company is prepared to admit that they are preparing documents for the transfer of Saban’s stake back to Hutchison.
However, Saban made an interest payment on the loan due in October 2018 several months late and hasn’t yet made the 10 million shekel interest payment due last April. As a result, Hutchison could declare him in violation of the loan agreement at any time and demand immediate repayment of the principal.
Speculations about Saban’s exit have grown since last week, after Tel Aviv District Court Judge Hagai Brenner rejected an appeal by bondholders who sought an order to force the billionaire pay a 115 million shekel dividend.
“The difference between the size of the debt and the value of Partner shares he controls may incentive Haim Saban not to repay the debt and in consequence cede control of the shares put up for collateral,” Brenner said, explaining that if Saban gave up the shares, he would not be required to pay the dividend.
Given the poor state of the cellular market, Brenner said the odds of Partner stock recovering to a value that would change Saban’s calculations were very low.
The loan in question dates back to 2009, when Hutchison, which had been one of the founders of Partner in the late 1990s, sold its stake to Ilan Ben-Dov’s investment vehicle Scailex. Ben-Dov didn’t have the capital to buy Partner and took a 1 billion loan from Hutchison to finance the purchase.
Ben-Dov ran into financial difficulties and agreed to sell control of Partner to Saban in 2013 for 1.5 billion shekels. Saban agreed to take over the Hutchison loan from Scailex as well as pay the dividend under certain conditions to Scailex’s Series Vav shareholders – the ones who lost last week’s court ruling.
Partner has been struggling since then, as have Israel’s other big three cellphone companies after wide-ranging market reforms went into effect in 2012.
They opened the Israeli mobile market to new players and made it easier for subscribers to switch providers, leading to a sharp drop in phone rates. The big three have been seeking new revenue streams and looking to become an integrated multi-service telecoms group, but those efforts haven’t reached their bottom lines.
In the second quarter of 2019, the latest the company has reported, Partner earned just 3 million shekels on turnover of 781 million shekels. It is performing better than its rivals – Cellcom Israel reported a net loss of 35 million shekels for the period and its shares are down close to 60% from their 2013 peak.