Bethel Finance: Banks oppose Partner sale terms

www.bethelfinance.com
The banks will torpedo Ilan Ben Dov's attempts to finance his debts to bondholders by increasing the debt of Orange franchisee Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR). From "Globes"' checks with the banks, it emerges that they strongly oppose Ben Dov's plan to increase Partner's debt so that it can distribute a dividend to service the debts of its controlling shareholder.

Ben Dov, who has lost NIS 1 billion on paper on his investment in Partner, wants to increase the company's debt as part of the sale of his controlling interest in it to a third party. One of his ideas is to finance the sale partly by increasing Partner's debt after the sale is closed, and on the basis of this capital base, to distribute a dividend to the new shareholders.

In the past few weeks, Ben Dov has been meeting banks, outlining his idea for the sale of the controlling interest in Partner and solving his dilemma. "This is a hallucinatory structure," a top banker said on Friday. "Partner isn't Tao Tsuot Ltd. (TASE: TAO-M) or Suny Electronics Ltd. (TASE: SUNY), where it's possible to make parties at interest deals; to sell and buy as you please. We won't let Partner increase its leverage, which would jeopardize its ability to repay its debt, especially in the current condition of the communications market."

Another banker said, "He (Ben Dov - E.P.) has forgotten that we are not someone to be kept informed, but someone that gives permission, and I doubt that permission can be given to moves like transferring control and increasing the debt of Partner. This is especially true when the capital market has no confidence in Ben Dov, and I don’t think that he realizes just how little."

Worsening leverage

Partner's debt totaled NIS 5.4 billion at the end of September 2011, 71% of its balance sheet total. This debt includes NIS 2.1 billion owed to the banks and NIS 2.6 owned to bondholders, most of which is due for repayment in 2016-18. Partner's debt position has greatly deteriorated since Ben Dov acquired the company. At that time, Partner's debt-to-balance sheet ratio was 43%, and its bank loans totaled just NIS 300 million.

Partner's share price has fallen 55% since the beginning of 2011. Ben Dov-controlled Scailex Corporation (TASE: SCIX; Pink Sheets:SCIXF) owns 44.5% of Partner, worth NIS 2 billion. Against this asset, Scailex has a huge NIS 3 billion debt, mostly to bondholders, and the rest to Hutchison Telecommunications International Ltd. (NYSE: HTX; HKSE: 2332), which gave Scailex an owner's loan to finance the acquisition of the controlling interest in Partner from it.

Most of Scailex's debt is due for repayment over the next two years, and since it cannot repay the debt through the capital market (the yield on Scailex's bonds reaches 24%), Ben Dov recently announced that he wants to sell all or part of his shares in Partner. Scailex has hired Deutsche Bank and Lazard Freres as advisors for a sale, and Deutsche Bank might even extend a $1 billion loan to a potential buyer.

One option is for a third party to buy the public's stake in Partner, becoming its controlling shareholder and taking it private. Ben Dov's stake in such a deal is not clear.

Partner's share price fell 0.3% in early trading on the TASE today to NIS 28.62, after falling 1% on Nasdaq on Friday to $7.84, giving a market cap of $1.22 billion.