Erech Finance in 2025: The Runoff Book Is Shrinking, but the Public Shell Still Needs a New Engine

Getting to Know the Company

Erech Finance no longer looks like an active non-bank lender. In 2025 it was effectively a public shell running a collections book, holding a credit license that had been canceled, trading on the preservation list, and trying to buy time until it could bring in a new operating activity. What is still working now is the survival layer: annual loss fell to roughly NIS 6.8 million from roughly NIS 8.3 million, overhead came down, and the company still carries a gross debt book of roughly NIS 49.2 million from which it estimates roughly NIS 10.5 million will remain net after provisions.

But this is not a return to business. All customers are already past due, about NIS 48.7 million out of the NIS 49.2 million gross book is classified as impaired debt, year-end cash was only NIS 53 thousand, and all financial liabilities sit within one year. So the active bottleneck here is not growth, and it is not competition either. It is liquidity, time, and the ability to keep a public shell alive until a binding transaction can bring in a new operating engine.

Anyone reading only the headlines around the February 2026 merger memorandum and the convertible loan from the same month could think the picture is starting to clear. That is a mistake. The memorandum is non-binding, it requires a NIS 20 million capital raise, it gives the private company’s shareholders an expected 80% of the merged company, and it assumes the existing lending activity will leave the public company before completion unless the other side wants it retained. So even when the story improves at the headline level, the value that is actually accessible to current shareholders still depends on a long list of conditions that have not been closed.

That is also the right way to read Erech Finance now. This is no longer a question of whether there is still a lender here. It is a question of whether a collections book, short-dated debt, a related-party funding layer, and shell-company status can be turned in time into a real merger with breathing operating activity before erosion and dilution consume what little value is left for common shareholders.

First finding: 2025 is not a weak year of new lending. It is a full runoff year. When the company itself says every customer is already past due, revenue of NIS 98 thousand is no longer a line that tells a business story. The real story is how much of the old book can still be recovered.

Second finding: the balance sheet is weaker than it first looks. Not only is there an equity deficit of roughly NIS 8 million and negative working capital of roughly NIS 18.9 million, but all financial liabilities are concentrated within one year, and some of them include immediate-repayment rights.

Third finding: the control layer is already funding the period, but it also sits above common shareholders. At the end of 2025 the company owed roughly NIS 2.35 million in loans to related parties and another roughly NIS 1.97 million in payables and accrued balances to them.

Fourth finding: the proposed merger is not meant to rehabilitate the existing credit book. It is meant to replace it. That distinction matters. Anyone still reading the company as if it were on its way back to its old lending business is reading the situation incorrectly.

What misleads a superficial read is that a smaller annual loss looks like improvement. In practice, this is a company whose balance sheet kept shrinking, whose assets fell by roughly NIS 5 million in one year, whose liabilities stayed almost unchanged, and whose equity moved from a positive roughly NIS 4.3 million in 2023 to a deficit of almost NIS 8 million in 2025. This is no longer a question of growth rate. It is a question of erosion rate and of whether the company can replace its engine in time.

Events and Triggers

The key insight here is that the triggers moving Erech Finance are no longer inside the old credit book. They now sit in licensing, exchange status, bridge funding, and the attempt to bring in an outside operating activity.

2025 shut the credit door and left only collections

First trigger: the license was canceled. In September 2025 the regulator canceled the company’s extended credit license and the license of Erech Loans. That changes the read entirely. A company without a license and without new underwriting is not a lender waiting for recovery. It is an entity managing an exit from one activity and hoping to build a new entry path through another deal.

Second trigger: the company was classified as a shell company after having already been moved to the preservation list in July 2024. This is not a technical footnote. It is a real actionability constraint. Under TASE rules, if the conditions for returning to the main list are not met within 48 months from the date the security moved to preservation, the share is delisted without another board discussion. So the clock matters.

Third trigger: shareholders had already rejected a NIS 10 million rights issue in July 2025. That is an important signal because it says the shell failed to raise equity even before the new February 2026 move. Anyone underwriting a future NIS 20 million raise inside the merger has to remember that the company already failed an easier financing test.

Trado failed, and February 2026 opened a second attempt

Fourth trigger: 2025 already included one strategic attempt that failed. In April 2025 the company signed a memorandum with Trado Solutions at a NIS 27.5 million valuation and with a requirement to secure at least NIS 5 million of outside financing. By August, due diligence was still underway, but in December the negotiations were terminated. That matters because the current move is not the first attempt to inject activity into the shell. It is the second attempt after one deal that did not mature.

Fifth trigger: in February 2026 the company signed a new memorandum with a private company in financing and credit against real-estate collateral. This is where the story becomes more interesting, but also harsher. The proposed structure gives 80% to the private company’s shareholders and 20% to the current public shareholders, even before the NIS 20 million capital raise that is supposed to occur without diluting the private company’s shareholders. So already at the term-sheet level, the real protection is given to the incoming side, not to the old public side.

The same document also assumes that the current lending activity will not remain inside the public company before completion, but will be sold, dealt with in a creditors’ arrangement, or otherwise resolved. So anyone looking for a synergy story between the old business and the new one is probably missing the core structure. This is much more a case of engine replacement than of expansion of an existing activity.

The convertible loan buys time, but it does not close the gap

Sixth trigger: on the same day as the merger memorandum, February 22, 2026, the company took a NIS 500 thousand convertible loan at 7% annual interest for 12 months. The conversion price was set at NIS 0.956 per share, and 512,436 warrants were later allocated to the lender.

That is important money for a company with only NIS 53 thousand in cash, but it has to be kept in proportion. Against roughly NIS 19.7 million of current liabilities, a NIS 500 thousand loan is short-term oxygen, not a funding solution. And when the chairman is also allowed to join on similar terms, the message is that the shell still depends on point funding and on the willingness of insiders or connected parties to keep it alive for a bit longer.

Efficiency, Profitability, and Competition

The central point is that Erech Finance’s profitability can no longer be judged like that of an active lender. The question is not whether the company improved margin. It is whether the remaining loss after lower overhead is still reasonable relative to what can realistically be extracted from the book.

The book is no longer generating revenue. It is generating collection judgments

Revenue fell to NIS 98 thousand from NIS 181 thousand in 2024 and NIS 282 thousand in 2023. That is not a number that describes an active business. Against it, cost of lending was NIS 1.486 million, and the credit loss provision rose to NIS 2.46 million from NIS 1.874 million in 2024. So the heart of the report is not revenue. It is the process of recognizing that a growing portion of the old book will not be collected in full.

That chart is the core of the story. The gross debt book declined only modestly, from roughly NIS 51.9 million to roughly NIS 49.2 million, but the net book after provisions fell from roughly NIS 15.3 million to roughly NIS 10.5 million. In other words, the economics of the book deteriorated faster than the book itself. The average provision rate jumped to 78.68% from 70.45%, and that is already a very sharp statement about the quality of the remaining assets.

The point gets even harsher once the debt classification is examined. Out of NIS 49.21 million of open debts and checks for collection, about NIS 48.738 million is classified as impaired debt. That is roughly 99% of the book. The meaning is straightforward: this is no longer just a portfolio with a high delinquency rate. It is almost entirely a book managed from an enforcement and expected-failure position.

Concentration did not disappear. It moved into court

The customer book remains concentrated mainly in sectors that are hard-hit when rates are high and the economy is under pressure: construction and real estate together account for 65% of the book. That does not mean every debtor in those sectors is lost. It does mean the book sits where collateral realization, legal timing, and borrower cash pressure tend to be more difficult.

Even inside the book, diversification is weaker than the phrase “dozens of customers” suggests. The top ten customers alone account for roughly 67.8% of the gross book, and the company has already recorded about NIS 26.8 million of provisions against them, more than 80% of that top-ten exposure. That tells two stories at once: there is still some recovery potential in the larger files, but a large part of what used to be an asset has already been written down.

More than 60 files are already in legal proceedings. So concentration here is not only business concentration. It is also legal and cash concentration. If several large files drag on, shareholders do not just receive “somewhat lower collections.” They get more lost time and more erosion in the company’s ability to serve debt.

What actually improved is the overhead layer, not the business

General and administrative expense fell to NIS 2.903 million from NIS 3.034 million, and the company moved from 6 employees and service providers at the end of 2024 to just 2 at the end of 2025. That was necessary, and it helps explain why total loss narrowed. But it needs to be read correctly: this is not the efficiency of a growing platform. It is a shell adjusting its cost base to a shrinking business.

Competition, which still appears at length in the business description, is no longer the first-order story. The company still lists Peninsula, Accord, Opal Balance, and others as non-bank lending competitors, but its real bottleneck today is not brand or market share. It is the lack of a license, the lack of funding sources, and the absence of new underwriting.

Cash Flow, Debt, and Capital Structure

This is where the real core of the thesis sits. The right framework here is all-in cash flexibility, because the key question is not the normalized earning power of a going concern. It is how much cash is left after everything the company actually has to fund and roll.

At the end of 2025 the company had NIS 53 thousand of cash, NIS 840 thousand of current assets, and NIS 19.731 million of current liabilities. That is not ordinary balance-sheet tension. It is evidence that the old book no longer funds the current shell, and that the company’s existence depends on rolling liabilities, delaying payments, and on lenders and insiders being willing to give it more time.

A superficial look at the cash flow statement can mislead, because operating cash flow was only negative NIS 39 thousand versus negative NIS 222 thousand in 2024. That is misleading too. The improvement did not come from a business that stabilized. It came inside a shrinking book: customer credit fell by roughly NIS 2.375 million, other payables rose by roughly NIS 632 thousand, and the company still needed an increase of roughly NIS 207 thousand in related-party credit. In other words, operations look calmer because the activity is in collections mode, not because the model is working again.

The debt layer itself remains problematic even without a bank. Loans from other parties and from related parties carry 5% to 13% interest, are short term, and the note states explicitly that immediate repayment is possible. At December 31, 2025, the company had NIS 15.925 million of loans from related and other parties, and all undiscounted contractual obligations, including payables, sat within one year at NIS 20.527 million. So the drop in finance expense to NIS 26 thousand does not mean the balance sheet became comfortable. It mostly reflects the shape of the year, not the disappearance of funding pressure.

The related-party layer is both a lifeline and a priority layer

At the end of 2025 liabilities to controlling shareholders and related parties totaled roughly NIS 4.325 million, of which NIS 2.353 million was credit and NIS 1.972 million was payables and accrued balances. In addition, net management-fee expense to related parties was NIS 1.455 million in 2025, while controlling shareholders continued to carry unpaid compensation balances that accrue interest.

That matters for two reasons. First, without this layer the company would probably have had a much harder time getting through 2025. Second, this layer sits ahead of common equity. So when the market speaks about “value” in the shell, it has to separate accounting value in the collections book from value that is actually reachable after lenders, payables, and related parties are dealt with.

The outside warning signal that confirms the thesis

When a company sits on NIS 53 thousand of cash, a NIS 200 thousand regulatory fine is no longer background noise. The company has already provided for one NIS 200 thousand sanction, and it is also facing another regulatory process for failure to file the annual credit report for 2023, where a NIS 200 thousand sanction was contemplated as well. This is exactly the kind of outside signal that sharpens the thesis: the problem is not only collections, but also the fact that any unusual payment suddenly becomes large when the cash box is almost empty.

Outlook

First finding: 2026 looks like a forced bridge year for a public shell, not like a recovery year for the current lending business.

Second finding: the current activity is not being brought into the new deal as an anchor asset. It may be taken out of it from the start.

Third finding: the new money disclosed after the balance-sheet date is still far smaller than the short-term liability wall coming due within a year.

Fourth finding: what will change the market read is not another headline. It is the ability to present a binding agreement, a credible funding route, and a workable path back to the main list with a real operating activity.

The implication is that 2026 is not a breakout year. It is a proof year for the shell. The company has to prove that it can move from a stuck collections book and short private debt into a new operating activity before time runs out. As long as there is no binding agreement, no audited financials for the incoming private company, and no closed structure for the NIS 20 million raise, the market is getting more narrative than certainty.

It is also important to see what the market may miss. The new memorandum sounds positive because it finally introduces an activity in financing against real-estate collateral, a field the market can underwrite more easily than an empty shell. But the same document also says the capital raise will not dilute the private company’s shareholders, and that the existing lending activity is expected to leave the public company. So even if the transaction closes, it does not automatically mean current shareholders will retain the full upside of the new activity.

The value of the old collections book is not automatically accessible either. The company itself says the activity may be sold, put through a creditors’ arrangement, or otherwise handled. So the right way to read the book is not “there is still NIS 10.5 million net.” The right question is how much cash actually arrives, at what pace, and to which layer of the capital structure after all senior claims are paid first.

What could change the market’s interpretation in the short to medium term? First, any new information about due diligence, the incoming private company, and the identity of the funding source behind the NIS 20 million raise. After that, any movement in the collections book or in the current funding layer. In a company like this, even half a million shekels either way already changes the read.

Risks

Collection risk remains the first risk

Almost the entire book has already moved into an impaired position, more than 60 files are in legal proceedings, and the company itself admits collection capacity has deteriorated. In that setup, any valuation of the book is really a realization estimate, not a customer-credit estimate. If proceedings take longer, or if collateral proves weaker than assumed, the net book can erode further.

Funding risk is not theoretical. It is immediate

All liabilities sit within one year, some lenders can demand early repayment, and the company is under a going-concern warning. This is not a standard caution tied to a weak market multiple. It comes from an almost empty cash box, short debt, and relatively expensive private funding sources.

The merger can create dilution before it creates value

The new transaction could be a rescue move, but it could also be a move that brings in new activity at the price of heavy dilution for the old public shareholders. Until a binding agreement exists, there is no way to know precisely what remains for existing holders after the incoming side’s 80%, the NIS 20 million capital raise, and the treatment of the old lending activity.

Preservation-list status and shell-company classification change the rules of the game

The preservation list and shell-company status are not just compliance matters. They affect liquidity, the ability to attract new capital, and the company’s capacity to present a normal market path. Even if a deal is signed, the company will still have to go through a meaningful regulatory and exchange process.

The governance layer is not fully clean either

In 2025 no internal audit was performed, no internal-auditor report was submitted for the period, and the executive compensation policy was not approved in October 2025. These are not the factors deciding the thesis on their own, but in a tiny, leveraged, cash-constrained company, any weakness in governance carries more weight.

Conclusions

Erech Finance is now trading less like a lender and more like a public shell trying to buy time. What still supports the thesis is that there is a net collections book of roughly NIS 10.5 million, that related parties continue to fund the period, and that there is finally a new merger memorandum pointing toward replacement activity. The main blocker is that none of those three layers is clean yet: the book is eroding, the funding is short, and the merger is non-binding. In the near to medium term, the market read will be determined less by the existence of a deal headline and more by whether it becomes a binding agreement with real money behind it.

Current thesis: Erech Finance is no longer a non-bank lending story. It is a shell trying to turn a collections book and a short-dated liability load into a new operating activity before time runs out.

What changed: in 2025 the company moved formally from a stage where a return to lending could still be discussed into a stage where the license was canceled, the company was classified as a shell, and the core trigger shifted to an external merger transaction.

Counter-thesis: this read may prove too conservative because the company still carries a net book of more than NIS 10 million, has no bank debt, and in February 2026 opened a merger path that could bring in a new business and funding far larger than anything it had before.

What could change the market read: a binding agreement, a clear capital-raise structure, and orderly financial disclosure for the incoming activity. That is what could turn Erech Finance from another shell searching for a deal into a platform the market can begin to price.

Why this matters: in a shell company, shareholder value is not determined by what the business once was. It is determined by how much cash can still be extracted, who gets paid first, and whether a new engine enters in time.

For the thesis to strengthen over the next two to four quarters, the company needs to show both reasonable collections from the old book and rapid progress toward a binding transaction with real funding. What would weaken the thesis is another sequence of extensions, small convertibles, and dilution without a closed deal and without improvement that is truly reachable for common shareholders.