After Rough Patch, Leadcom Is Back in the Black

Figures obtained by TheMarker show a 2011 profit, but which lenders will get their money back?

Oren Freund
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Oren Freund

Two and a half years after falling into receivership, Leadcom Integrated Solutions appears well on its way out of the abyss of insolvency.

According to figures obtained by TheMarker, the company netted $16 million before tax on $96 million revenue in 2011. The last financial reports it had published showed a $33 million loss in the first half of 2009.

Just a few years ago the future of Leadcom, which designs and builds wireless and cellular communications networks in developing countries, still looked rosy. The company was floated on the London AIM in 2005 at a $61 million valuation, and became listed on the Tel Aviv Stock Exchange in 2008, where it raised $30 million in bonds from institutional investors. It had contracts piling up for projects in Africa, began entering the wireless field, and boasted large annual double-digit growth rates.

By 2009, however, cash flow difficulties began to surface, as Leadcom struggled to collect payment on projects performed in Africa, while paying $18 million to acquire France's YTelcom and nearly emptying the company's coffers.

In mid 2009 its kitty held just $14 million against $38 million owed to five banks - including $16 million to Bank Hapoalim and $12 million to Bank Leumi - and $28 million to bondholders. A comprehensive debt settlement with the company's creditors now seemed inevitable.

But when one couldn't be worked out, Leadcom was assigned a receiver, attorney Ofer Shapira, who represented the banks in the settlement negotiations.

Broad cutbacks pay off

After the departure of CEO Arik Alcalay, Shapira tapped Leadcom vice president Ofer Ahiraz to run operations, and the two set out to stabilize the company. "We cut expenses considerably and adapted the management style and structure to suit a company with a large number of projects, something previous management hadn't done," explains Shapira. The company's operations had been profitable beforehand too, he says, but it was incapable of dealing with expansion due to mismanagement.

"Management had no control over what was happening in the field," Shapira continues. "Decision making was too remote from the projects themselves. There were also quite a number of people receiving hefty salaries without contributing in any significant way to the company."

Shapira made broad cutbacks which included slashing 300 jobs worldwide and tightening conditions for the 700 remaining employees.

"We cut everywhere possible and adjusted management to fit a company with a broad range of activity," he says. "We also improved the company's capability for collecting payment in African countries and deepened our business in India, which turned out to be a very profitable market."

Shapira and Ahiraz have managed to repay the banks $16 million of the $38 million owed without selling off any of the company's activities; $11 million was paid in cash from ongoing operations and $5 million from the release of guarantees on foreign projects.

Bondholders still haven't received any money back, but Shapira says that under proper management, "it will be possible to sell the company at a value that also enables bondholders to enjoy a slice of the pie. My goal is to bring in as much money as possible for all company creditors.

There have been feelers on our operations abroad and in Israel as well, but the process has been conducted slowly since we want to find the best possible deal.

"A sale must reflect the fact that retaining the company as a going concern is a viable alterative," he insists. "It's still too soon to say whether we'll succeed in returning money to bondholders. This depends on the value we'll get for the company but it's definitely a possible scenario."

Committed to the creditors

Since November 2009 Leadcom stockholders haven't been able to sell their shares, not even at a huge loss.

Asked about this and whether the company could be restored to shareholder control, Shapira replies, "Chances for shareholders seeing part of the pie are remote at this stage. Right now the company is profitable, but we could certainly run into more problems down the line.

"I can't take this risk since I am first and foremost committed to returning the debts owed to the company's creditors. If the company sells for more than its total debts, shareholders, as the lowest-ranked claimants, would certainly receive what's left over."

Most of Leadcom's shares, 70%, are in the hands of public shareholders. Of the balance, Gershon Salkind's Elco Holdings owns 12%, Zvi Limon's Rimon Investment Fund - which invests primarily in the telecom industry - owns 7%, Citigroup owns 6%, and The Phoenix Holdings owns 5%.

Shapira refused to name a minimal price for Leadcom's operations, but considering the company's 2011 financial results and additional contracts being closed in Africa, it seems the decision to appoint him as receiver was a good one - at least for the banks.

Time will tell whether it was also the right move from the perspective of Leadcom bondholders and stockholders.

A Leadcom project in Africa.Credit: Victor Borokov



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