As the coronavirus sends one company after another reeling into liquidation with no succor offered by the banks, and the bailiffs knock on the doors of the newly unemployed, the big pension companies on Sunday agreed to set aside the massive losses wrought on pensions and savings by Yitzhak Tshuva, the last surviving tycoon on the Tel Aviv Stock Exchange, and offer him a lifeline. Details of the rescue package were released Monday.
From the beginning of this year, Tshuva’s Delek Group — which focuses on oil and gas and which owes bondholders, mainly large institutions, NIS 6 billion ($1.65 billion) — has lost 79 percent of its value, cutting deep into the money invested for the pensions of ordinary Israelis.
But on Sunday, two of Israel’s biggest pension and insurance companies, Menora Mivtachim and Harel, representing the bondholders, pulled back from the brink of demanding immediate repayment, and instead signed a draft framework that gives Tshuva another year to breathe.
The Delek Group will not have to prove it has a minimum capital of one billion shekels ($285 million) until mid-2021, and that is to increase gradually to NIS 2.6 billion ($735 million).
A meeting of bondholders scheduled for Wednesday to vote on immediate insolvency proceedings will now be postponed. Investors were given details of the deal during a Zoom meeting on Monday, and will meet next week to vote. The deal also requires the approval of the banks (which themselves are owed billions of dollars by Tshuva, although, unlike the bondholders, the banks have access to assets that were been signed over as collateral). A third condition is that Delek Group raises NIS 400 million ($113 million) by the end of this year, starting with at least NIS 100 million ($28 million) by the end of this month.
The deal effectively seeks to turn a debt without any guarantees whatsoever into one with guarantees of at least NIS 2 billion (some $567 million).
Among its many clauses, the framework forbids the Delek Group to leverage itself anymore without prior agreement, limits its ability to mortgage other assets and issue dividends, and demands cuts in management costs.
It also gives the investors units (similar to shares) in Delek Drilling, a subsidiary, as collateral, to the tune of 5% on signing the framework and increasing to 40% from December this year to December 2022, after which it will drop to 34% for the final year. This collateral is currently held by the banks. As Tshuva pays off the banks, they will release the collateral, which will be transferred to the bondholders.
One problem with this future ownership is that Delek Drilling — which, together with the Texas-based Noble Energy, discovered and built the infrastructure to exploit the Tamar and Leviathan natural gas fields off Israel’s Mediterranean coast — is not such stellar prospect either, itself owing billions in loan repayments over the coming years.
According to The Marker (in Hebrew), Tshuva personally owes around a billion shekels, Delek owes NIS 9.3 ($2.6) billion, and additional billions are owed by its subsidiary companies — Delek Israel owes NIS 1.8 billion ($510 million), Delek Drilling NIS 11 ($3.1) billion and Ithaca (focusing on the North Sea) NIS 5.6 ($1.6) billion. These sums total NIS 29 billion.
We’ve been in a similar situation before
Just nine years ago, in 2012, the same financial institutions agreed to help Tshuva via a debt settlement related to another of his companies, Delek Real Estate. Part of the deal involved wiping NIS 1.4 billion off of a NIS 2.1 billion debt. At that time, Tshuva promised that bondholders would get back the difference, in installments, to be paid over seven years. It was a take it or leave it deal.
The big institutions said they would not be investing in Tshuva’s companies in future.
But less than three years later, they were doing it again, an exposé by Channel 13 News revealed on Friday. (Channel 12 eschews the subject; Tshuva is a shareholder.)
Menora Mivtachim, which is responsible for teachers’ pensions, lent Tshuva NIS 281 million ($80 million today), while Harel lent NIS 224 ($63.5) million. Investment houses Meitav Dash lent NIS 109 ($31) million and Psagot NIS 103 ($29.2) million. In total, the public — through bond purchases by the big financial institutions — has lent Tshuva NIS 6 billion ($1.65 billion) since the Delek Real Estate debt restructuring.
During the years in which Tshuva was securing all these loans, either via stocks and bonds or in credit from the banks, he also issued himself a dividend bonus of NIS 1.5 billion ($425 million).
Then last year, he took a massive gamble by having parent Delek Group — a third of which (33.78%) is owned by the public — sell off most of its non-energy related subsidiaries to focus on oil and gas.
Taking a gamble
Last spring, Tshuva ignored warnings that he was getting too big for his boots when he raised $1.72 billion dollars to buy North Sea oilfields from market giant Chevron. Leveraged up to the eyeballs, he fell victim to plummeting oil and gas prices brought on by a price war between Russia and Saudi Arabia, and the near global COVID-19 lockdown, which has seen huge drops in energy demand.
Last month, two civil society groups, Lobby 99 and Financial Justice, called on the Bank of Israel’s supervisor of banks, Hedva Bar, to intervene immediately and “prevent substantial and needless financial damage to the majority of pension holders in the country, who are already absorbing losses because of the corona crisis.” (Some 25% of Israeli workers are seeking unemployment benefits.)
Lobby99’s CEO, lawyer Linor Deutsch, told Channel 13’s expose, “It has to stop.” Owners of companies who went bust could not be allowed to continue to control the companies and to do business.
But on Sunday, Tshuva revealed himself to be the ultimate Teflon man, when the Harel and Menora giants offered him his lifeline.
As one insider told The Times of Israel, these large institutions calculated whether they would get more from such a deal or from taking Tshuva to court to have a liquidator appointed. Evidently, they decided that the former looked more promising.
“This is not a haircut,” the source said. “It doesn’t say, ‘You owe us NIS 6 billion, pay us back NIS 5 billion.’ The debt remains at NIS 6 billion.”
In terms of loan repayments, banks are the first in the queue, followed by bondholders and then shareholders. Tshuva’s shareholders have also taken a massive hit, and will be hoping that if the framework is agreed to and the company improves, their fortunes will too.
The public also guarantees Tshuva’s natural gas empire
For the past five years, the Israeli taxpayer has been helping generously to prop up the partnership of Tshuva’s Delek Group and the Texas-based Noble Energy.
This follows the government’s agreement in 2015, via the so-called gas framework, to a deal that locked the Israel Electric Corporation into paying Delek and Noble prices for natural gas from the Tamar reservoir that rise every year while globally, energy prices have been plummeting.
This is compounded by clauses that enable the companies to defer payment into a special sovereign wealth fund, intended to recoup part of the industry’s profits for the public’s good. Not a dime has been paid yet for the Tamar field, which started production in 2013. The giant Leviathan field only began commercial pumping at the start of this year.
How does Israeli industry’s Teflon man do it?
According to Channel 13, it was smaller investment houses that invested in Tshuva after 2012, with the big companies buying from them.
Guy Rolnick, founder and editor in chief of the business daily The Marker told the program that one of the reasons for the goodwill shown to Tshuva was that he offered so many jobs — to regulators, politicians, senior police, analysts and journalists — that it was in people’s interests to keep on his right side.
‘Negligent’ financial sector forgives loans for rich, chases poor
In April last year, a Knesset commission of inquiry, headed by then Labor MK Eitan Cabel, slammed what it called the “negligent” financial sector for “systematically” extending or writing off loans for the rich, while pursuing small debtors to the “last cent.”
It was the public that was funding “free lunches for tycoons,” while the banks sent repossessors after ordinary debtors.
The committee described the systematic way in which Israel’s banks cozy up to business tycoons by giving them outsized loans, writing off hundreds of millions of shekels’ worth of their debts, and then balancing their own books by charging their regular customers more for everyday financial services.
Over the years, the inquiry indicated, the banks’ untenable practices, and the failure to effectively regulate them, have cost the public billions of shekels. It also castigated the banks for doing everything in their power to hide information from the committee.
The committee found a “regulatory vacuum” with no sanctions and no deterrents for “severe negligence” in the granting of credit. Regulators, especially those supervising the banks, were being “held hostage” by the very bodies that they were supposed to supervise.
The parliamentary committee was set up in July 2017 in the wake of several high-profile cases involving business moguls sinking into massive debt, and then having significant proportions of those colossal debts written off.
Among other things, it probed how banks and other financial sector bodies such as pension and investment funds made decisions to grant large loans, what guarantees were demanded, what sanctions were implemented if loan conditions were broken, and how regulatory bodies enforced the rules to protect the stability of the financial system.