Partner Telecom Repays Bondholders to Bypass Dividend Block

Israeli telecommunications company Partner has devised a strategy to distribute a special dividend of NIS 500 million to shareholders, despite objections from bondholders and insufficient accumulated profits. The company's available distributable surplus is only around NIS 75 million, necessitating a court-approved capital reduction for the larger payout. Partner plans to finance this dividend by raising approximately NIS 750 million in new debt, which is expected to increase its net financial debt to around NIS 800 million.

Bondholders, specifically holders of Series G and H bonds represented by institutions like More, KSM, and Harel, had twice rejected the proposed dividend, citing concerns about the company's ability to meet its obligations. In response, Partner has opted for the early redemption of NIS 140 million in Series H bonds and NIS 344 million in Series G bonds, totaling about NIS 484 million. This move effectively removes the dissenting bondholders from the equation, as they will receive their principal back, albeit losing their investment in the company's bonds.

The primary beneficiaries of this dividend will be the controlling shareholders, Amphissa Holdings, which includes figures like Avi Gabbay and institutions such as Phoenix, Clal Insurance, Menora, and the Erkin family. Holding 21.2% of Partner's shares, they are set to receive approximately NIS 106 million. Amphissa Holdings acquired its stake in April 2022 for about NIS 960 million and has since benefited from other dividends and significant paper gains.

Despite the controversy surrounding the dividend, Partner's core business appears robust. In the second quarter, the company reported a 17% increase in net profit to NIS 84 million. Its 5G subscriber base has surpassed one million, and it has expanded into new areas, including securing a 30% share in a government tender for fixed-line communications. The company's market value stands at approximately NIS 7 billion.

The final decision on the capital reduction and dividend distribution rests with the court. If approved, the funds will be disbursed to shareholders. This maneuver, where a company finances a dividend beyond its profits by taking on new debt and circumventing bondholder opposition, is considered rare for large public companies and raises questions about market precedent.