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The sale of Partner Communications' parent company, ScailexCorporation, to Hutchison Whampoa has hit a shoal. The FinanceMinistry and Psagot Investment House are mounting fierce broadsideattacks against the deal, claiming it will fleece bondholders. On Wednesday Oded Sarig, the treasury's capital markets, savingsand insurance commissioner, sent a letter to institutionals holdingScailex bonds, ostensibly asking them to address the deal, which hesaid posed a "potential violation of fund members' rights," but infact signaling that they should reject it. This is the first timethe commissioner has ever intervened in a specific transaction. "In view the possible damage to members' rights, we would like toknow how you will protect the funds entrusted to your management,"Sarig wrote. Suny Electronics, controlled by Ilan Ben-Dov, has agreed to sellits controlling stake in Scailex to Hutchison for $125 million andto pay $100 million to buy back Scailex's Samsung cell-phoneimporting business. One of Hutchison's conditions is an imposedsettlement for the roughly NIS 2 billion in outstanding bondsissued by Scailex, for which it proposes paing 15% to 30% underface value. Remarkably, this would mean a "haircut" for bondholders that notonly doesn't cost the owner anything or require him to pay in, buteven sees him coming out ahead: Ben-Dov may be losing Partner butwill be left with the income-generating Samsung import businesswhile the bondholding public pays the price. This is probably whySarig decided to set a precedent and step into the picture. Meanwhile, Psagot also went into action, with freshly minted CEOHagai Badash leading the charge after just one week on the job. Ina letter to the bond trustees - Clal Finance, Hermetic, Strauss &Lazar, and Reznick Paz Nevo trust services - Psagot insisted onurgently convening bondholder meetings to appoint representativesfor a showdown with Scailex. Psagot objects to haircut It is reported that Scailex shareholders are expected to receivepayment for part of their shares while bondholders are beingrequired to forfeit part of the debt they hold," said Psagot'sletter. "This formula contradicts Psagot's principles on debtsettlements and it therefore appears that Psagot, with the interestof its customers at heart, cannot agree to the current format." Psagot, which holds about NIS 200 million in Scailex bonds for itsclients through its mutual fund company headed by Yaron Dayagi,argued that it is unacceptable that the shareholder, Ben-Dov inthis case, is being compensated while creditors are given ahaircut. This, it said, contravenes all economic and financiallogic according to which creditors always take precedence overshareholders when problems arise. Sarig listed three questions that need to be addressed, clearlyhinting at the three acute drawbacks he finds in the deal. "Can it be said that compensation to the controlling owner forcompany shares doesn't come at the expense of compensation tobondholders who will have to accept a purchase offer at asubstantially lower price than face value?" was the first issueSarig laid on the table. This relates to Hutchison paying Suny,owned by Ben-Dov, $125 million for its Scailex shares whenHutchison could have used the same money to up its offer tobondholders. The second question Sarig put to the institutionals is, "Could thepartial planned purchase offer cause preferential treatment forother creditors over the debt you own?" The commissioner referredhere to Hutchison's decision to forcibly buy back only some Scailexbond series, possibly giving rise to discrimination betweencreditors. The third point was, "Does the Samsung activity transfer pricereflect its market value?" Sarig referred here to the second partof the deal between Hutchison and Ben-Dov whereby the latter,through Suny, will use part of the money paid by Hutchison to buyback the Samsung cell-phone import activity from Scailex. Sarig asked the institutionals for their responses to these threepoints of contention by Sunday, "including an updated analysis ofthe deal's effect on the debts you are holding," he wrote. The commissioner of capital markets, savings and insurance doesn'tactually have the authority to interfere with the judgment ofinstitutionals in specific transactions. He can only intervenewhere an institutional is being run in a way that endangers itsmembers' funds and, even then, only in the most exceptionalcircumstances. The institutionals could, in fact, ignore hisrequest for clarifications - or refuse to "get the point" - andapprove the Scailex deal. Even so, it can be assumed that the institutionals would have ahard time doing so publicly, especially considering that this isthe first time the commissioner has ever decided to meddle in aspecific deal, proving how strongly he disapproves. Furthermore,refusing to follow his instructions could expose them to potentiallawsuits by fund members. So it is likely the institutionals will"get the point" and reject the Scailex deal in its current format. We are high quality suppliers, our products such as China PVC Smart Card , China PVC Gift Card for oversee buyer. To know more, please visits Mifare Smart Card.
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