The pyramid-structured holding group that tycoon Shaul Elovitch constructed over Bezeq – Israel’s biggest telecommunications provider – is at risk more than ever of collapse as the group companies’ share prices sink, debt payments are due and no buyers emerge for the assets.
The latest setback same on Wednesday when Internet Gold, which sits close to the top of the pyramid, said it received no binding offers for its 65% stake in B Communications. Bcom owns a controlling 26.3% stake in Bezeq.
The news sent Internet Gold shares down 18.4% in Tel Aviv Stock Exchange trading to 3.21 shekels (87 cents) by closing and B-Com finished down 1.2% at 18.80. Bezeq rose 1.3% to3.32, its second day of gains amid market speculation that the stock has no where to go but up after falling close to 30% since mid-November.
Bezeq group has been in trouble since Elovitch first came into investigators’ crosshairs in June 2017. He was not only forced to cede control to creditors as the group’s share price sunk but the widening investigations forced out key Bezeq executives.
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The shares have come under renewed pressure again in the last two months amid growing problems for the group. Bezeq stock, in particular, has been weighed down by foreign investors dumping their stock, most notably the Swiss bank Pictet, which until recently held 1.5% of the company’s stock.
On Wednesday, Internet Gold sought calm investors even though it has failed to find a buyer for Bezeq since mid-2018.
“The company’s board continues to explore the possibility of selling its B-Com shares, continues with discussions with the potential bidders, and continues to explore possibilities for strengthening the company’s capital structure,” it said. “The company has sufficient reserves to service its debt in 2019.”
The disappointing results will be discussed at a meeting of Internet Gold’s Series Gimmel and Dalet bondholders on Thursday. For the Dalet bondholders to get full repayment of the money owned them, Internet Gold would have to get 35 shekels a share for B-Com, after costs, more than twice what the stock is now trading at.
As it now appears now, a 40 million shekel payment due Series Bet and Gimmel holders due in March will not be made.
The situation is even worse for the three Israeli banks – Israel Discount, Hapoalim, and First International – that got a 55% stake in Internet Gold after Elovitch’s closely held holding company, Eurocom Communications, became insolvent. Internet Gold’s debt, roughly estimated at 1 billion shekels, is far bigger than the value of the stock.
The banks not only stand to write off hundreds of millions of shekels in debt but the 55 million shekels in new capital they injected into the company last June to prevent it from falling into the hands of creditors.
While coping with problems in his own company, Internet Zahav CEO Doron Turgeman has to contend with B-Com’s debt. Some of B-Com’s Gimmel bondholders, who are owed 2.25 billion shekels, are seeking to block a 225 million shekel payment to Series Bet bondholders due at the end of March.
The payment would deplete a third of B-Com’s cash. As a result, odds are growing that B-Com will have to enter into negotiations about rescheduling its debt.
Meanwhile, Bezeq itself faces a tougher, a difficult relationship with Israel’s Communications Ministry as well as more competitive market.
The company has been seeking approval from the ministry to end its structural separation of key business units, such as internet service, from the parent company and its land line operations. Ending the government-imposed separation could save Bezeq 500 million shekels annually.
The company is determined to fight even to the High Court of Justice over the issue, but many industry sources say ministry officials are reluctant to give any help to Bezeq, meaning the company could find itself in a protected legal battle.
Official reluctance to do anything seen as helpful to Bezeq is due to the Case 4000 investigation of allegations that Prime Minister Benjamin Netanyahu made a trade-off with Elovitch of regulatory help in exchange for favorable news coverage from Bezeq’s Walla! website.
Meanwhile Bezeq is contending a tougher telecoms market and last week said it was weighing a plan to reduce the valuation of its Yes satellite television. Its Pelephone mobile unit is also suffering amid persistent to cellular rates.
Bezeq CEO Shlomo Rodav is trying to reduce costs in the company’s land line business, especially high salaries, to improve the company’s long-term position. But in the short term, they will entail 512 million shekels in charges that will erase the company’s second-half 281 profits.
With reporting from Reuters