Kohan Properties Ousts Controlling Shareholder Amid New $2.7 Million Debt Revelation

Kohan Properties is facing further complications as a new debt of $2.7 million owed by controlling shareholder Mike Kohan has been revealed, adding to previous financial irregularities. This latest debt has been repaid to the company, but the board has deemed it another serious incident, leading to Kohan's removal from management and the revocation of his signing authority. Kohan had previously stepped down as CEO earlier this month to become president, a role he has now also relinquished.

Ran Ben Daniel, who joined the company as CFO in Israel, has been appointed as the permanent CEO and sole authorized signatory. This development is the latest in a saga that began in July, shortly after the company raised 412 million shekels from Israeli investors in March. Initially, it was discovered that Kohan had used approximately $9.6 million of company funds to repay loans on assets outside of Kohan Properties. A subsequent, broader investigation mandated by the Israel Securities Authority revealed that Kohan's debt to the company had reached about $15.5 million, with some transactions occurring even after the initial misuse of funds was uncovered.

Kohan had committed to repaying the outstanding debt. By early September, the remaining debt was reported to be around $4 million, half of which was settled in cash, with the remainder handled through the transfer of asset rights to the company. The revelation of an additional $2.7 million debt underscores the ongoing financial scrutiny.

The ongoing scandal has eroded investor confidence in Kohan's bond, which was issued at a 7.75% interest rate. The bond is currently trading around 94 agorot, reflecting a yield to maturity exceeding 10%, a significant increase from its initial rate due to the market's perceived risk premium since the events came to light. The bond series is secured by liens on eight U.S. properties, including commercial centers and a Chicago asset. Kohan had transferred 17 properties to the company prior to the offering, with the funds raised in Israel used partly to refinance the group's expensive debts.

The public exposure of this situation is substantial, with 136 funds holding the bond totaling approximately 157 million shekels. Major holders include More with nearly 80 million shekels, and Ayalon and Migdal each holding over 20 million shekels. The Israel Securities Authority has already tightened requirements for foreign real estate companies seeking to raise debt in Israel, following a series of similar incidents with BVI-registered companies, such as the Simed affair where tens of millions of dollars were transferred to entities linked to the controlling shareholders, causing the bond to collapse.

The removal of Kohan from management and the transfer of signing authority to Ben Daniel are intended to strengthen internal controls. For bondholders, the primary test moving forward will be ensuring that funds remain within the company, that pledged assets generate expected cash flow, and that no further incidents of financial misconduct occur.