US investment firm to take control of debt-ridden Delek Real Estate

After a difficult week for Israel's business tycoons, billionaire Yitzhak Tshuva pulled a rabbit out of a hat Sunday to restore bondholder confidence and save his Delek Real Estate company.

Delek Real Estate owes bondholders NIS 2.2 billion (about $630 million), due in part due to failed investments made during the global real estate bubble, and has no cash to pay off the debt. Investment companies own half of Delek Real Estate's bonds, while the other half is owned by private investors and speculators.

On Sunday, the company announced that Tshuva is in advanced negotiations to transfer control of the company to an unnamed U.S. investment firm with assets estimated at $5 billion. The deal to transfer the company, which owes most of its debt to public pension funds and banks, is pending the approval of bondholders, who in past weeks have been fearful of getting “clipped” due to Delek's request to postpone an upcoming interest payment.

According to Delek Real Estate executives, the U.S. investment firm has never done business with Israel before, and has no existing ties to Tshuva's financial group.

A senior financial expert said a major sticking point in the deal was that it did not reduce the prime debt owed to bondholders. “There may be a postponement of payments, but not an elimination of payments,” the expert said. “Yitzhak Tshuva could have transferred all of his company stocks to the investment firm, leaving the firm to cut whatever deal it wants with the bondholders. But he didn't do that. He was adamant about the firm reaching an agreement with the bondholders. He is being responsible. He is staying with the company until the end, and will work hard to satisfy all parties involved.”

According to the agreement, the investment firm will have 14 days to investigate the suitability of the purchase of Delek Real Estate. After the investigation, Yitzhak Tshuva will transfer control of the company to the firm, but will retain a large portion of the company's stocks. Tshuva will relinquish a debt of NIS 120 million ($34 million) owed to him by the company, and will invest an additional NIS 100 million ($28.5 million). The investment firm will contribute NIS 500 million ($143 million) of its own.

In response to the pending deal, Delek Real Estate stocks soared by 63 percent, contributing to a rise on the Tel Aviv 25 Index, which saw an overall increase of 2.77% on Sunday.

Meanwhile, the Knesset Economics Committee held a meeting Sunday to discuss the potential downfall of the country's tycoons. “Pension fund investors are not in any danger. Business tycoons are privy only to a small portion of the pension funds,” Capital Markets Commissioner Professor Oded Sarig said. He said that big businessmen used very few pension and provident funds for investment, and tended to have measured and diverse investments.

“If a tycoon falls, damage to people's savings would be no more than 1%. Even if half the tycoons falter, damage to public savings would be 16% at most. But the ensuing damage, because of public panic about the tycoon's downfall, cannot be measured statistically,” Sarig said.

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