Bank Leumi is in advanced talks to sell a controlling stake in real estate developer Jerusalem Economy to billionaire Beny Steinmetz, as the bank seeks to claw back some of the money JEC’s majority shareholder, Eliezer Fishman, owes it.
Sources said Steinmetz is likely to pay 400 million shekels ($105.3 million) for the 40% holding in JEC that Fishman pledged as collateral to Leumi against the 1.5 billion shekels the tycoon owes.
Other potential buyers are in negotiations with the bank, but Steinmetz is expected to be the highest bidder. The sale to Steinmetz would leave Fishman, one of Israel’s biggest tycoons, with a minority 23% holding in JEC.
The news sent shares of JEC, which has significant debts of its own, soaring in Tel Aviv Stock Exchange trading yesterday. The stock ended 15.1% higher by closing time at 12.83 shekels, giving the company a market capitalization of 1.04 billion shekels – about the same valuation as the Steinmetz deal places the company at.
Two years ago, JEC was trading at 30.38 shekels. But that was before JEC – through its Mirland and Sweetland units, which hold portfolios of real estate assets in Russia and former Soviet republics – was pounded by the collapse of the ruble and Russian economy.
Steinmetz, whose family owes its fortune to the diamond business, has no history of investing in real-estate turnarounds, and it is not clear why he is interested in JEC. Nor is it clear whether he will inject cash into JEC or perhaps private real estate assets, to help shore up the company after he buys it.
The latter would require the consent of JEC bondholders and banks, who will want to get an exact accounting of the assets’ value. JEC has some 3.5 billion shekels in debt to banks and bondholders, and needs a capital injection of about 500 million shekels to strengthen its finances and shareholders’ equity.
At 2 billion shekels, JEC shareholders’ equity is just 10% of its balance sheet, and that is likely to go lower because of write downs by its Mirland unit, which holds most of JEC’s Russian property portfolio. Others are expected in Sweetland, which invests in former Soviet republics.
Leumi, which has already written down some 1 billion shekels of Fishman debt, has an interest in seeing JEC and its group of companies strengthened financially because it has hundreds of millions of shekels in loans outstanding.
Although Leumi would be getting back only a fraction of its Fishman debt, a sale to Steinmetz would yield more than letting a court appoint a receiver and selling JEC that way. However, sources close to the bank said that if Fishman raised objections to the Steinmetz sale, the bank wouldn’t hesitate to put JEC into receivership.
The sale would enable Leumi to recover some of the 1 billion shekels in debt it previous wrote off, though sources said it would be less than the bank had once hoped. The bank is racing against the clock to prevent JEC’s credit rating falling below its current Baa1, which could risk it being tagged by auditors with a “going concern” warning in its second-quarter financial report.
Plans by the company to raise capital by selling properties in Germany and Canada have been going slowly, raising concerns at Leumi.