Citigroup, Canadian fund eyeing Delek
American financial services company's real estate fund, Canadian fund specializing in yield bearer property are looking into acquisition of controlling stake of Yitzhak Tshuva's struggling real estate company. Talks between Delek Real Estate, CIM cool down after latter insists on haircut for bondholders
However, while DGRE signed a memorandum of understanding with CIM's expatriates Avi Shemesh and Shaul Kuba, and even reported the negotiations with the fund, DGRE signed no memorandum of understanding with either of the two new prospective buyers, but did sign non-disclosure agreements with both funds regarding their valuation of DGRE's assets.
These valuations have been going on for the past two weeks vis-à-vis DGRE's management. A source with knowledge of the negotiations said the Canadian fund was offering DGRE better terms than those proposed by CIM.
Talks between Tshuva and Shemesh and Kuba hit choppy waters earlier this month, when CIM rejected Tshuva's terms which nixes a haircut to DGRE bondholders.
According to the initial draft of the agreement with CIM, the fund will take over the control of DGRE gratis, subjected to the following conditions: It would give DGRE a NIS 500 million ($135 million) loan and would agree to a debt arrangement sans haircut.
Tshuva on his part, agreed to give DGRE a NIS 100 million ($27 million) loan, which would rank as a junior loan as compared with the company's other financial obligations.
Estimates are that Tshuva will eventually agree to pour more than NIS 100 million into DGRE – perhaps even as much as NIS 250-300 million ($68-81 million), providing that the buyer would pour into DGRE more funds than those stipulated in the agreement with CIM and uphold the agreement with the company's bondholders.
Delek Real Estate's bondholders and Tshuva agreed on two main issues: The bondholders agreed to a deferral of the final principle payment of NIS 300 million to January 2012 and DGRE on its part committed to make a NIS 50 million acquisition offer for its Series 4, Series 5 and Series 25 bonds on July 2012.
Both agreements will be effective only in the event that DGRE fails to reach a debt arrangement with all of its bondholders by 2012.
Thus far, DGRE has sold off assets worth over NIS 5 billion in order to meet its financial obligations to banks and bondholders. DGRE's overall debt to its bondholders (principle plus interest) is NIS 2.4 billion ($650 million), of which NIS 900 million ($244 million) are scheduled for repayment within a year.
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