Israel: Beny Steinmetz tries again for Scorpio debt arrangement

Two months next the bondholders in failing real estate company Scorpio Real Estate Ltd. (TASE: SCRP.B1) rejected a deficit arrangement proposed by billionaire Beny Steinmetz, Scorpio's controlling shareholder, Scorpio is making an extra proposition. The company today published principles for a possible new deficit arrangement that it hopes the bondholders will approve.

Like the previous proposition, the new proposition as well includes a one third reduction in the deficit, from NIS 240 million to NIS 160 million. The difference between the proposals is that under the current proposition, the remaining bond principal will be repaid in four gradually increasing payments, inclunding a minimum payment of NIS 20 million by June 30, 2016, rising to an NIS 80 million minimum payment by June 30, 2019, at the same time as it as well undertakes to repay the remaining principal to the bondholders. Under the previous proposition, payments would not have begun until June 30, 2019.

As far as is known, one of the reasons that the previous proposition did not succeed was that the some of the bondholding institutions, headed by Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), demanded an enforceable personal guarantee as a condition for its approval. Scorpio is presently claiming that Steinmetz will guarantee the payments, with the company providing the bondholders' trustee with confirmation from a lawyer that the foreign companies in which Steinmetz was "a beneficiary or one of the beneficiaries (even though he is not involved in their management, does not control them, has no influence over them, and it is by no means clear that that he received money from them)… have a surplus of assets over liabilities" better than the all to be repaid. Scorpio added, "The parent company and the controlling shareholder in the company shall not be entitled to repayment in respect of the company's debts to them as long as the reduced bond deficit has not been fully repaid."

Scorpio has been in a difficult national for completely some time, and the further decline in its situation, which led to the current deficit arrangement proposition, came in 2014, following the tension between Russia and Ukraine, which disrupted the company's business in these nations. As a result, the group's financial statements have carried a going concern warning for a considerable time. The company's initial deficit arrangement, amounting to NIS 570 million, came in 2011, with Steinmetz injecting $100 million into the company in exchange for rescheduling of the deficit.