Mega Seeks Stay of Proceedings as Suppliers Demand Payment

Supermarket chain lacks products such as certain branded baby formula, dairy products and tea.

Ofer Vaknin

Israeli supermarket chain Mega apparently is heading toward a stay of proceedings within the next few days.

The board of parent group Alon Blue Square is scheduled to meet Wednesday to discuss petitioning the court to approve this week or next a stay of proceedings to protect the company against its creditors, sources told TheMarker.

The company has 3,200 employees.

On Tuesday, Mega distributed graphs showing how suppliers had cut back on shipments to the store, creating shortages to the extent that the chain could no longer properly function, the company said. The graphs indicate that Mega’s debt to suppliers declined by 35% since July, which was before the ailing chain asked the court to approve a debt settlement.

In August, Mega closed 32 branches that were losing money. However, the company claims this accounts for only part of the decrease in debt to suppliers. In total, the company owed suppliers 650 million shekels for goods in June, versus 450 million in December.

Small suppliers in particular have been looking to limit their exposure to the chain. They brought the chain 60 million shekels in goods in June, but only 10 million in December. These suppliers lack credit insurance and are more vulnerable if a major customer doesn’t pay.

The chain owes suppliers 500 million shekels. It owes another 400 million to banks and service providers.

Things took a turn for the worse last week when some of the country’s biggest food suppliers, including Osem and Tnuva, tightened their terms, and are now willing to provide Mega with goods only in exchange for payment in cash, said a senior executive at the parent company Alon Blue Square. The companies are also demanding more solid collateral to secure Mega’s debts to them, and they want it not from Alon Blue Square, but from parent company Alon Group, said the executive.

“Mega can’t pay 40 million shekels in cash to its suppliers every week. Neither can [competitor] Super-Sol, for that matter,” he said.

Mega currently lacks products including Similac baby formula, Gad dairy products, some Tnuva hard cheeses, Wissotzky tea, soy milk and certain yogurts, the executive said.