Bethel Finance: Bezeq bondholders oppose NIS 500m dividend

www.bethelfinance.com
Some Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) bondholders are trying to block the distribution of more dividends by the company, controlled by Shaul Elovitch, after it has already distributed a NIS 1 billion of its special dividend to shareholders. A group of private bondholders today petitioned the Economics Division of the Tel Aviv District Court to set a date for a hearing for objections to the distribution of dividends that allegedly do not comply with profit tests.

The petitioners cite, "The dramatic fall in Bezeq's profitability, the dramatic fall in Bezeq's value compared with its value on the date that the request to approve the special dividend, the increasing competition to the company's business, regulatory changes, the dramatic increase in the company's liabilities, and the additional inherent risks related to the company's business environment and continued operations."

Bezeq has distributed NIS 8.8 billion in dividends since Elovitch completed the acquisition of the 30.4% controlling interest in the company for NIS 6.5 billion in April 2010. Elovitch needs the dividends to repay the loan he took to acquire the company - 60% of the financing came from a long-term loan by a banking syndicate.

The tip of the Elovitch pyramid is Eurocom Group, which controls Internet Gold Golden Lines Ltd. (Nasdaq: IGLD; TASE:IGLD), the parent company of B Communications Ltd. (Nasdaq:BCOM; TASE: BCOM), which owns the stake in Bezeq. Bezeq, Israel's largest telecommunications group owns mobile carrier Pelephone Communications Ltd., satellite TV company DBS Satellite Services (1998) Ltd. (YES), ISP and international calls carrier Bezeq International Ltd., as well as control of portal Walla Communications Ltd. (TASE: WALA). Internet Gold's share price has fallen 71% in the past year, B Communications' share price has fallen 64%, and Bezeq's share price has fallen 23%, due to Bezeq's worsening results, regulations, and rising competition.

Despite the drop in Bezeq's profits, it has continued to distribute dividends, the main beneficiary of which is Elovitch himself. In January 2011, Bezeq's general shareholders meeting approved a special NIS 3 billion dividend, which was not paid from the company's profits, but by a reduction in capital. The Tel Aviv District Court approved the dividend. The dividend will be paid in six semiannual installments in 2011-13, two of which have already been distributed.

Bezeq is a strong and profitable company, but the dividends have greatly affected its balance sheet. In the first quarter of 2010, before Elovitch's takeover, it shareholders' equity was NIS 7.2 billion, and its liabilities totaled NIS 7 billion. Its shareholders' equity shrank to NIS 2 billion at the end of the third quarter of 2011, and its liabilities ballooned to NIS 16.4 billion.