At 9 a.m. on Tuesday, Judge Eitan Orenstein of the Tel Aviv District Court will hold a hearing that could well determine the fate of Eliezer Fishman’s property company, Jerusalem Economy Corporation.
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Orenstein will consider Bank Leumi’s request to seize the 40% of JEC that Fishman controls and appoint attorneys Eyal Rosovsky and Ronen Matry as receivers. Fishman owes Leumi some 2 billion shekels ($517 million), a few hundred million shekels of which the tycoon has pledged the JEC stock as collateral.
Fishman’s personal debt is an estimated 4.5 billion shekels, almost all of which is owed to Israeli banks. In addition to what he owes Leumi, he owes an additional 2 billion shekels to Bank Hapoalim. He owes Mizrahi Tefahot Bank and Israel Discount Bank each 250 million shekels and Union Bank another 150 million shekels to 200 million shekels.
Fishman’s assets, estimated at somewhere between 1 billion shekels and 2 billion shekels, add up to far less than his liabilities what he owes. In addition to JEC, they include stakes in well-known businesses like Home Center Israel, the Ten gas station chain and retailers Toys R Us, Zer4U, Celio and ID Design. In addition, Fishman and his family have real estate holdings in Israel and overseas estimated to be worth up to 1 billion shekels.
Fishman’s power and influence is more than money. His media holdings include the business daily Globes and 34% of Yedioth Ahronoth, Israel’s biggest media groups.
Leumi only turned to the courts after Fishman and his family formally admitted they could not meet their obligations on time and after a deal to sell the JEC shares to a group led by the Nakash brothers of Jordache jeans fame fell through last week. Leumi would have received 370 million shekels, leaving Leumi writing off the remaining 470 million shekels Fishman owes it.
Other collateral Leumi holds includes Fishman’s shares in Globes, as well as some real estate and land. All told, these holdings are probably not worth more than a few hundred million shekels.
Nakash brothers back out
The JEC sale blew up even though the Nakash group had signed a binding agreement on August 29 in which they would have to pay Leumi 35 million shekels if they failed to complete it. When the news that the sale had collapsed was reported, the JEC share price tumbled nearly 30%. Fishman’s JEC stake is now worth just 244 million shekels.
The collapsed sale was not only bad news for Leumi but for JEC, which was counting on a cash injection from the Nakasah group to help it repay 1.9 billion shekels it owes bondholders.
The collapse of the ruble and Russian recession has hit JEC’s Russian portfolio hard. Losses at the company’s Mirland Development Corporation and Sweetland subsidiaries have forced JEC to write off 700 million shekels over the past year. It may need to write off an additional several hundred million shekels in the future.
For now, Bank Hapoalim, which is also owed some 2 billion shekels by Fishman, is letting Leumi take the lead in pursuing Fishman’s debts. But is also ready and willing to take action against him if necessary, sources close to the bank told TheMarker over the weekend.
Hapoalim holds some collateral for its Fishman debt, including 7% of JEC, 70% of Ten and Fishman’s holdings in Home Center. But altogether, this collateral is probably not worth much more than 10% of Fishman’s debt to the bank.
JEC CEO David Zvida says the company is still solvent and can survive, even though its market value today is just one-fifth the 3 billion shekels it was a year ago. He says the company is working on a refinancing plan that will allow it to continue operations no matter who controls it. One option, however, would be issuing new shares, diluting existing shareholders, including the bloc Leumi wants to sell.
With the Nakash group out of the picture, other buyers are likely to emerge for JEC and other parts of the Fishman empire. The question is at what price, especially now that Leumi has taken Fishman to court.
The appendixes Leumi attached to its court filings provide more light on the complex business relationship between Leumi and Fishman over the past 25 years.
Fishman had traditionally been one of the big bank’s best borrowers, accounting for no small part of the bank’s profits. Over the past decade, however, he morphed into the bank’s most problematic debtor and a serious burden. Still, Leumi was patient and forgiving with Fishman, who had been one of Israel’s most powerful and influential businessmen.
Leumi CEO Rakefet Russak-Aminoach deserves credit for being one of the few bankers who tried, if belatedly, to take steps against Fishman as she did against Moti Zisser, whom Leumi evicted from his Petah Tikva home, and against Joseph Greenfeld, who controlled the real estate firm Kardan and personally owed Bank Leumi some 110 million shekels. Leumi initiated receivership proceedings against him.
Leumi will pay a steep price for its forgiving attitude toward Fishman and its reliance on overly optimistic forecasts about his businesses, particularly JEC. On the other hand, Leumi has already written off over a billion shekels of Fishman debt, so it faces no real threat to its stability.
The documents appended to the court petition showed that in 2003 Leumi signed a debt restructuring agreement with the Fishman family’s privately owned companies that extended the repayment period through 2019. Fishman committed to reducing his debts to the bank every year.
The agreement was signed by then-Leumi CEO Galia Maor and Ehud Shapira, then head of Leumi’s commercial banking division and today the chairman of the Psagot investment house (another creditor of JEC). It was just a short time before Russak-Aminoach came to Leumi and was appointed head of commercial banking.
At the end of 2007, Russak-Aminoach signed a revised agreement with Fishman, under which JEC was to cut its debt to Leumi to just 195 million shekels by the end of 2015, less than a third of the 642.5 million shekels it owes the bank today. Fishman family’s private holdings were to have cut their debt to Leumi to 239.3 million shekels, compared to the some 949 million shekels they owe today.
Interest paid, but not principle
Fishman has faithfully repaid Leumi hundreds of millions of shekels in interest over the years, but has been unable to reduce the principal. In February 2011, Leumi even sent two of the private companies a letter advising them they had violated the terms of their debt-restructuring agreements and warning the bank would take legal action.
But even after the warning letter, Leumi continued to treat Fishman with kid gloves. A letter the bank sent on May 22, 2013 to all of Fishman’s companies, which together owed some 2 billion shekels, made it clear that the bank considered him insolvent. The letter said the companies and Fishman had not paid either interest or principal on the loans and other credit, despite many discussions on the matter. It called the failure “a fundamental violation of the agreements.”
But instead of seeking to sell off Fishman’s controlling stake in JEC back then and bringing in what would have been about 1 billion shekels, Leumi took its time. Then, at the end of 2014, a severe economic crisis struck Russia, slashing the value of the holdings of Mirland and causing JEC’s share price to plummet.
In December Leumi sent the Fishman group companies another letter informing them that if they did not pay off their overdue debts by January 5, the bank would demand immediate repayment of all their debts. With the deadline past, the bank started negotiations to sell control of JEC, asking some 500 million shekels for the shares.
A first round of negotiations with Beny Steinmetz went nowhere, before the bank settled on 370 million shekels, along with Steinmetz agreeing to put cash and other assets into JEC. But as the markets fell Steinmetz backed out in August just before the time came to put his signature on the deal. Then came the turn of the Nakash brothers, whose deal fell through last week.