Haim Katzman (Gazit Globe PR photo)
The control struggle that took place in Norstar which controls Gazit Globe (which is actually its only asset) could have led to a lowering of its credit rating. The immediate meaning of lowering a company’s credit rating is an increase in financing expenses and for a company that has only one asset and is dependent on dividends from it, this is a very hard blow.
So, somewhere last year, a struggle for control of Norstar began when Canada Israel of Barak Rosen and Assi Tuchmeyer began to purchase shares of the company, while on the other hand stood the businessman Haim Katzman, who responded with his own purchases and, at some point, Norstar announced the distribution of Gazit shares as a dividend in kind to its shareholders, at the same time it published Canada Israel Tender offer for Norstar shares.
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If this whole mess were to ripen into an all-out war, then there would be no choice but to lower Norstar’s credit rating, mainly due to the fact that it has one asset, Gazit Globe, and if part of it is distributed to the shareholders as a dividend in kind, then it will be left with fewer shares of Gazit, and hence its stability may be undermined .
But then the markets started to fall and Canada Israel announced that it was withdrawing its purchase offer, which allowed the rating to start checking if the mess has calmed down so that an examination of Norstar’s financial stability can be carried out without the “background noise”.
“Midrog believes that the uncertainty surrounding the control of the company will continue in the coming period, but at this stage the cancellation of the combined move to distribute dividends and issue rights reduces the uncertainty regarding the structure of the company’s holdings in the base asset. Midrog will continue to monitor the fluctuations in connection with the control of the company, and their effect on the characteristics Norstar’s business and financial positioning” write Madrog’s analysts.
“In recent months, we have witnessed a sharp increase in the company’s leverage rate resulting from a significant erosion in the market value of Gazit shares. The market value of the company’s holdings in Gazit shares is estimated at approximately NIS 1.8 billion, which reflects an LTV of approximately 43%, this compared to an LTV rate of approximately 32% , at the end of the first quarter of this year with a share market value of approximately NIS 2.4 billion. According to Midrog’s base scenario, which includes, among other things, a sensitivity scenario of erosion in the value of the holdings in relation to the value of the share, the leverage ratio is expected to range between 50%-55% in the years 2022-2023.
“Financial flexibility is appropriate for the rating and is supported, among other things, by the control of G City, when the latter’s holdings are listed for trading, as well as an ongoing trend of reducing debt in the company and alongside lines of credit in significant volumes from a number of local and foreign banks. The company has a number of financial conditions towards banks and bondholders when In Midrog’s assessment, the margin from financial benchmarks is high in a way that supports the flexibility parameter.
“It should be noted that the company’s credit lines are backed by a lien on the shares of the held company, so a possible erosion in the value of the collateral could have a negative effect on the company’s liquidity. Midrog estimates that the company will continue to maintain a high margin in relation to standards,” Midrog says.
In Midrog’s estimation, the company has reasonable financial flexibility, which mainly stems from the company’s significant control of the company it owns (about 51.6%), when its holdings in G City are listed for trading, which gives it financial flexibility in light of the ability to liquidate, at least part of the holding. However, some of Gazit’s shares are pledged in favor of credit facilities from banks.”
In conclusion, the rating writes that “the company has a number of financial conditions towards banks and bondholders, while according to the rating, the margin from financial standards is reasonable. It should be noted that the company has financial standards with the banks in connection with the ratio of the leverage of the pledged shares to the extent of the credit facilities. The ratio combines the market value and the value The books of the shares and it stands at a good margin against the banking restrictions.”
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