Israeli Banks Take Telecoms Tycoon Elovitch to Bankruptcy Court

(Bloomberg) -- Three Israeli banks asked a court Wednesday to break up Eurocom Communications Ltd., saying it’s insolvent. The company is part of Shaul Elovitch’s Eurocom Group Ltd., the controlling shareholder of Israel’s largest telecommunications firm.

Bank Hapoalim Ltd., Israel Discount Bank Ltd. and First International Bank of Israel Ltd. told Tel Aviv District Court that Eurocom Communications owes them 961 million shekels ($275 million), and asked the court to appoint lawyers to oversee the sale of assets pledged against the loans.

A spokesman for Eurocom said the company was still reviewing the court papers and had no immediate comment. Spokespeople for Discount Bank and Bank Hapoalim confirmed that the banks had filed the court papers, but otherwise declined to comment. A spokesman for First International Bank could not be reached.

A forced bankruptcy could spell the end of Elovitch’s reign at the top of Israel’s telecom industry. It also could kick off a race to buy Eurocom’s stake in Bezeq Israeli Telecommunication Corp., which earned roughly 86 percent of profits in Israel’s telecom sector last year.

Falling Stock

Bezeq stock has plunged 23 percent since the Israel Securities Authority announced a probe into Elovitch and other company executives June 20, alleging they inflated the value of a merger to earn higher amounts for Eurocom and colluded with Israel’s communications regulator to set industry policy. Eurocom is not publicly traded.

For more on Elovitch investigation, click here

Investors have sold Bezeq stock, worried that Elovitch’s legal troubles and financial crunch could lead Eurocom to dump the 26 percent of Bezeq it owns through a subsidiary at a discount on the open market. Elovitch had to step down from his role at Bezeq and other executives were detained in the probe, throwing the company in flux. Elovitch’s lawyers have said he’ll be cleared of any wrongdoing.

Eurocom was willing to sell some of the assets it has put up as collateral for its loans, a person close to the matter told Bloomberg earlier this month. The company was not yet willing to sell its Bezeq stake, preferring to keep an asset it believes is undervalued given the cash flow the business generates, the person said.

Bezeq distributes almost all its profits as dividends, paying out 1.44 billion shekels last year despite losing market share. At 9.6 percent, Bezeq pays more than double the 12-month forward dividend yield of telecom firms with a market value above $1 billion, data compiled by Bloomberg shows.

To contact the reporters on this story: Michael S. Arnold in Tel Aviv at marnold48@bloomberg.net, Yaacov Benmeleh in Tel Aviv at ybenmeleh@bloomberg.net.

To contact the editors responsible for this story: Riad Hamade at rhamade@bloomberg.net, Gwen Ackerman, Kevin Costelloe

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