Gad Zeevi to banks: Sell Bezeq shares in off-floor deal, forget receivership

Businessman Gad Zeevi, who holds a 20% stake in state-owned phone company Bezeq, has suggested the banks to sell his Bezeq collateral in an off-floor deal, rather than opting for receivership.

In 1999 Zeevi Communications Holdings acquired Cable & Wireless's (LSE:CW) stake in Bezeq and Zeevi took $650 million in bank loans to finance the deal. Zeevi has defaulted on interest payments on those loans.

The banks hold the shares as collateral, but since the time of the deal their value has seriously eroded.

In a letter addressed to the banks by Zeevi's legal consultant Ehud Sol of the Herzog, Fox Neeman law office, Zeevi suggests the banks avoid the mess of receivership. He believes this will gravely and irrevocably damage his bloc of shares, the value of which has already eroded by $460 million to NIS 2.22 billion.

Zeevi would be happy were the banks to voluntarily sell the shares, which he deems can obtain a real price. Zeevi said that should the banks prefer receivership this will push down the shares, which are already trading low, in his opinion. Under receivership there are fewer chances of getting a fair price for the shares, offering the banks neither a good way out nor profit, Zeevi said.

In the letter, Sol noted that according to the law and the agreements between Zeevi and the banks, the latter cannot divide the bloc among the partners in the banking consortium that gave Zeevi credit. The banks can only sell the entire block in a tender, Sol said.

Zeevi estimates that this would result in a much lower price for the shares than the one set in a report by leading accountant Itzhak Swary at the request of the banks themselves. The report valued the block of shares at $700 million to $800 million. The sale could even result in a price lower than the current market price, $480 million. This would force the banks to make additional write-offs worth hundreds of millions of dollars, further damaging their financial strength, Zeevi said.

Zeevi said he regrets the banks didn't accept his January offer to extend the loan, in return for which he would have deposited the entire interest of $39 million.

Zeevi said that since Israel entered into a state of war, Bezeq shares have collapsed and the effort to privatize Bezeq has failed. This, in addition to unreasonable conditions laid down by the banks for extending Zeevi's loan, resulted in the withdrawal of the finance entities that had been willing to provide Zeevi with the amount required for paying the interest.

Given the security developments in the region, and that Bezeq shares are under lien and entrusted to an external trustee, Zeevi has proposed the banks wait until conditions ripen to sell Bezeq. He wants the banks to then discuss the options he proposes, which the banks haven't done to date. Zeevi said that these alternatives could enhance the value of the bloc, compared with its low price should the banks choose immediate receivership proceedings.