A prospective deal under which diamond billionaire Beny Steinmetz might have gained control of the Jerusalem Economy corporation collapsed last week, but other potential buyers of Eliezer Fishman’s real-estate empire are likely to emerge as Fishman struggles under a massive debt load.
Fishman is running into a serious cash squeeze for the second time in a decade. In 2006, his failed bet on the Turkish lira cost of hundreds of millions of dollars and he was forced to divest assets to meet repayments.
This time around its Fishman’s Russian holdings that are causing his cash flow problems. The collapse of oil prices and the Russian ruble have sent shares in Mirland Development Cooperation, which is 85%-owned by JEC, down 70% over the past three months, leaving it with a market valuation of just 400 million shekels ($102 million).
Mirland, whose holdings include 13 residential and commercial projects across Russia, was forced to suspend repayments to bondholders and is now trying to negotiate a spread over four years in exchange for a higher interest rates and/or a debt-for-equity swap.
Mirland’s troubles have reverberated on JEC, whose share price has dropped 50%, cutting its market cap to 1.1 billion shekels in the last three months. JEC bonds have also plummeted, leaving it with yields of 13%, much too high for the company to stand any chance of rolling the debt over.
The publicly traded companies – Industrial Buildings and Darban Investments, as well as JEC – have combined debt of 10.5 billion shekels. Asset sales helped cut the JEC group’s debt by about 4.9 billion shekels over three years, but both JEC and Industrial Buildings remain highly leveraged because of hundreds of millions of shekels of dividend payouts Industrial Buildings made to help cover JEC’s debt repayments.
Fishman’s problems are exacerbated by another 4.5 to 5 billion shekels that his closely held businesses owe. Most of his JEC shares have already been pledged as collateral for bank loans, principally to Bank Leumi.
An effort by Fishman to raise cash by selling or floating shares in his Brazilian cellular business, which was supposed to enable him to pay off some 250 million shekels owned to the United States Monarch Fund failed.
With his massive personal debt, Fishman’s situation looks similar to other Israeli tycoons, like Nochi Dankner and his IDB Group or Moti Zisser and Elbit Imaging, whose financial difficulties attracted investors looking to buy assets from distressed sellers.
The JEC group presents a rare opportunity to gain control of quality real-estate assets. The fair value of JEC’s real estate is put at 14.8 billion shekels, about evenly divided between Israel and overseas (although 1.2 billion of it is directly held by the company). The properties generated net operating income of 784 million shekels in the first nine months of last year.
However, potential buyers for JEC have two main obstacles ahead of them.
While JEC bond prices have plummeted, they aren’t yet cheap enough for an investor like the York Fund to wrest control by accumulating debt and then swapping for equity, as it did with IBD and Elbit Imaging. In any case, unless Leumi pressures him, Fishman is unlikely to act on his own.
The other problem is Leumi. The bank was stung by sharp public criticism when it agreed to write off 150 million shekels of Dankner’s personal debt in order to facilitate a deal to let the Argentine investor Eduardo Elsztain buy IDB, which had been pledged as a collateral for loans Leumi had made to Dankner. As the abortive talks between Fishman and Steinmetz showed last week, the bank will be loathe to make any similar concession to enable Fishman to sell the JEC shares.