Elovitch's Woes Mount Amid a Stinging Comptroller’s Report, Pressure From Banks

Securities investigators call in Communications Ministry director general and Netanyahu associate for questioning

Shaul Elovitch
Eyal Toueg

Shaul Elovitch, the telecoms titan now under investigation by the Israel Securities Authority, saw his problems mount on Wednesday as the State Comptroller issued a stinging report on what it termed the Communications Ministry’s problematic policies toward Bezeq and other Elovitch group companies.

The report came as the ministry’s director general, Shlomo Filber, was called in for questioning by ISA investigators. Meanwhile, bank creditors for Elovitch’s closely held investment vehicle, Eurocom, were demanding better protection against its debt and threatening to seek a bankruptcy order.

A day earlier, the ISA said it was extending its original probe into Bezeq’s acquisition of Elovitch’s stake in their joint venture satellite television company Yes in 2016, adding that it would include the business relationships between Yes and another Elovitch company, the satellite-communications provider Spacecom.

With the bad news piling up, shares of Elovitch group companies extended the losses that began when news of the ISA probe broke three weeks ago. Spacecom saw the biggest drop, slumping 6.9% to 23.09 shekels ($6.52). Internet Gold lost 5.1% to 29.70, B Communications 2% to 60.01 and Bezeq itself 1.7% to 5.72.

The rapid fall in the market capitalization of Elovitch group shares has left Eurocom’s net asset value (the total value of its assets minus the value of its debt) at just 150 million shekels and risks turning negative.

Eurocom executives met with Yoram Elroi, an executive at Bank Hapoalim, late on Tuesday and were told their company would have to pledge more collateral against loans and present a repayment plan for its debt. Hapoalim and Israel Discount Bank own the lion’s share of Eurocom’s debt. It owes Discount about 340 million shekels and Hapoalim 280 million. Elovitch has never personally guaranteed any of his company’s debt so he is not in danger of personal bankruptcy.

But Eurocom has almost no cash on hand and has about 100 million shekels in debt coming due between now and June 30, 2018. The company will only be able to repay it by selling off assets or by cash infusions from Elovitch himself. On the other hand, it has unpledged shares, such as its stake in Enlight Energy, Satcom and Internet Gold.

Meanwhile, Filber joined the parade of Bezeq and other Elovitch company executives at the ISA’s Tel Aviv offices. Filber was queried on suspicions relating to securities offenses and other ethical violations, the ISA said, but it offered no further details. A gag order was issued barring reporting of details in the case.

Filber, an associate of Prime Minister Benjamin Netanyahu, was appointed Communications Ministry director general in 2015, not long after Netanyahu took over the portfolio in November 2015 as minister. Netanyahu was forced to step down as communications minister in February amid accusations of conflicts of interest.

Those alleged conflicts as well as the ministry’s kid-gloves stance in regulating Bezeq and imposing reforms on the key landline telephony and internet segments were the focus of State Comptroller Joseph Shapira’s report. The background to the report, which documented improper procedures, delays in implementing decisions and lax enforcement, is the personal friendship between Netanyahu and Elovitch, which the comptroller said the prime minster failed to acknowledge in official disclosures when he took over the ministry.

The comptroller said the ministry never fully put into effect the so-called wholesale market reforms that would have required Bezeq to allow competitors, such as the cellular operators Cellcom Israel and Partner Communications, to offer service through leased lines on its network. The reforms were launched at the initiative of the previous communications minister, Gilad Erdan, and officially got underway in February 2015.

However, the comptroller said the ministry looked the other way while Bezeq undertook marketing policies that undermined the ability of rivals to sell their services. Among other things, the company’s sales representatives don’t offer customers the option of using rival plans, as it is required to do. Meanwhile, reforms of landline telephony, which were supposed to begin fully this month, are only in their first stages of implementation. Filber, the report said, offered Bezeq’s rivals an inferior plan that would have let them sell Bezeq lines without being able to operate their own service or lease lines.

The comptroller also severely criticized controversial plans to ease the structural separation Bezeq is forced to keep among its operating companies in exchange for accelerated infrastructure development.  The trade-off, which would have entitled Bezeq to huge tax-loss benefits, was developed by Filber without any input from other ministries and showed no evidence that any Communications Ministry staff work had supported it, the report charged.