Prime Minister Benjamin Netanyahu isn’t the only one contending with Case 4000. Israel’s biggest banks were left with 1.6 billion shekels ($430 million) of debt from Eurocom Communications, the holding company controlled by Shaul Elovitch, whose indictment the also recommended in the affair. Police and Israel Securities Authority probes helped push Elovitch in bankruptcy last year, leaving his bank creditors holding Bezeq group shares they had been pledged as collateral.
Since then, however, the banks have failed to find a buyer for Eurocom’s two chief assets, Bezeq itself and the satellite operator Spacecom. Since news of the police recommendation on Sunday, Bezeq group shares have plummeted in Tel Aviv Stock Exchange trading.
The banks do not control Bezeq directly. They hold 55% of a company called Internet Gold, which in turn holds 65% of B Communications, which has a controlling 26.3% stake in Bezeq itself. Eurcom is managed by court-appointed administrators.
Israel Discount bank is the biggest of the creditors, holding half the debt. Bank Hapoalim holds 600 million and First International Bank of Israel the rest. A sister company, Eurocom Real Estate, owes 260 million shekels to Mizrahi Tefahot Bank.
Over the last year and a half the banks have tried to reach deals to sell Bezeq to three different buyers, including the Israeli-American real estate developer Naty Saidoff. But they failed in each case.
The one sale of a Elovitch asset they have succeeded in completing was Enlight Energy, for 133 million shekels. But much of the proceeds was used by the banks to participate in a secondary share offering Internet Gold needed to conduct in order to repay bondholders.
The banks’ headaches with Bezeq group continue. Internet Gold is again threatened with insolvency and could end up in control of bondholders, thereby losing the banks their main collateral on the Bezeq debt.
Meanwhile, Bezeq itself is suffering serious business setbacks and regulatory problems. Its third-quarter results, published two weeks ago, showed a 27.3% drop in net profit to 234 million shekels and its shares have fallen 17.6% this year. On Tuesday they dropped another 2.7% to 4.07, leaving the company with a market cap of about 11.3 billion shekels.
Because so many Bezeq executives have been accused by police of involvement in Case 4000 and other offenses, the leading investment banks have refused to act as advisers on any sale. As a result Internet Gold CEO Doron Turgemen recently selected Oppenheimer & Company and Migdal Investment Banking, two companies with little mergers and acquisition experience, to handle the sale of B Comm.
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