Israeli Tycoon Moves Closer to Losing His Business Empire as Banks Seek Wind-up Order Against Eurocom

If the banks are successful, Shaul Elovitch will lose control of Eurocom, which in turn controls Bezeq, Israels biggest telecommunications company, through a pyramid-structured business group

Bezeq Chairman Shaul Elovitch.
Dudu Bachar

Embattled Israeli telecoms tycoon Shaul Elovitch moved a step closer to losing his business empire Wednesday after three of his bank creditors petitioned the Tel Aviv District Court to liquidate Eurocom Communications, the closely held company at the apex of his business group.

The petition, which also asks Judge Eitan Orenstein to appoint three lawyers on behalf of the banks to act as office holders of Eurocom and protect their interests, came after months of failed negotiations over a debt accord.

The demands given to Eurocom to repay the debt by Bank Hapoalim, Israel Discount Bank and First International Bank of Israel were never fulfilled and the company never reached an agreement satisfactory to [the banks], the lenders said in the petition.

Orenstein, who has presided over most of the biggest liquidations in Israel, including Nochi Dankners IDB group, scheduled the first hearing on the petition for Monday. In the meantime, Eurocom declined to comment.

If the banks are successful, Elovitch will lose control of Eurocom, which in turn controls Bezeq, Israels biggest telecommunications company, through a pyramid-structured business group. Shares of Bezeq and B Communications both fell about 2.5% to 4.96 and 58.73 shekels, respectively, in Tel Aviv Stock Exchange trading.

The banks move comes on the back of an Israel Securities Authority investigation that began in June and ended last month with a recommendation to prosecutors that Elovitch, his son Or, Bezeq CEO Stella Handler and others be indicted. The probe has complicated Elovitchs debt problems by causing the value of Bezeq group shares to plunge in value.

The central allegation of securities investigators is that Elovitch engineered an artificially high price of as much as 1 billion shekels for Bezeq to pay to buy out his 50.4% share in their Yes satellite television joint venture in a March 2015 deal.

The petition said Eurocom Communications owed a combined 971 million shekels ($278 million) – 480 million of that to Discount, 350 million to Hapoalim and 141 million to FIBI. It revealed that Eurocom ceased servicing its debt to Discount and Hapoalim at the start of 2015 and to FIBI about a year later.

Hapoalim said it had demanded that Eurocom resume repayments from that time on, but unfortunately these demands did not bring about the repayment of the debt in arrears or even part of it, the petition asserted. In addition, repeated attempts to formulate a negotiated arrangement that will enable repayment of the debts in arrears or part of them have failed.

Hapoalim, which took the most aggressive stance toward Elovitch because it holds almost no collateral, had set a final deadline of December 18 for Eurocom to repay. Elovtich had been in intense negotiations with an investor group led by Meir Shamir to inject capital into the company. If they had been successful, it would have left him as a minority shareholder in Eurocom and no longer in control of Bezeq.

In fact, Eurocoms debt woes run deeper. The figures cited in the petition only relate to Eurocom Communications debt, not to that of its sister company, Eurcom Real Estate, which owes 240 million shekels to a consortium mainly of institutional investors led by Mizrahi-Tefahot Bank.

In addition, many Eurocom subsidiaries have loans outstanding that amount to 735 million shekels, two thirds of that to Hapoalim and the rest to FIBI. Eurocom may also have to pay back to Bezeq some 114 million shekels it got in the Yes deal.

Against that, creditors have about 400 million shekels of collateral in the form of shares in Spacecom – a satellite operator that belongs to the Eurocom group – and the Midtown residential real estate project in Tel Aviv. Discounting that, whats left is somewhere between 500 million and 700 million shekels of uncovered debt.