G City Shifts Debt to Shareholders Through New Subsidiary Asset Transfer
After selling assets worth over 9 billion shekels, Haim Katzman, CEO and controlling shareholder (55%) of real estate company G City, is pursuing a new strategy to reduce the company’s debt by transferring it to its shareholders. G City plans a second round of asset transfers to a newly established subsidiary, Noga Commercial Properties, followed by an IPO where shares will be distributed as an in-kind dividend to shareholders. This mirrors a December 2023 move with Orion, a similar subsidiary that acquired shopping centers in Poland and whose shareholders have since seen a 34% drop in share value.
As of the end of March 2024, G City’s solo extended debt stood at 13.2 billion shekels, with consolidated debt including subsidiaries reaching about 20 billion shekels. The new subsidiary, Noga, will acquire three shopping centers in Finland valued at 423 million euros from G City’s 89.7%-owned subsidiary Citicon, which is being delisted. Noga will finance the purchase by issuing bonds worth 298 million euros and receiving a 65 million euro seller loan from Citicon, creating a total debt of 363 million euros (approximately 1.24 billion shekels). This move removes ownership and debt from Citicon and places it with G City shareholders, while Citicon will manage the assets for five years.
G City aims to reduce its high leverage, which was 64.7% consolidated at the end of March, down from a peak of 67.6% in 2022, targeting below 50% by 2028. Despite asset sales totaling 7.2 billion shekels and 530 million euros, leverage remains high. The transfer to Noga helps Citicon meet asset disposal targets without third-party negotiations that might lower sale prices.
However, market observers warn the move is risky for Noga’s shareholders, who receive assets without negotiation and face limited influence over management. Noga’s leverage is expected to reach 86%, higher than G City’s, with currency risk due to euro-valued assets and shekel-denominated debt. Critics call the transaction a financial maneuver rather than a true sale, citing Orion’s experience where shareholders suffered significant losses and legal disputes over leverage, currency exposure, and operational dependency on G City.
This development follows the collapse of a partnership deal with Tzachi Abu of Aryeh Real Estate, which was to include other controlling shareholders. A source close to G City described the high leverage as a "feature," not a flaw, emphasizing stable cash flow from the assets and protections against currency fluctuations for two years. Orion recently raised over 70 million shekels in capital, indicating investor confidence. G City expects Noga to similarly reduce overall leverage and provide shareholder value despite the risks.
