Gabay Group: Was the Mor Breach Truly Cured, or Did the Balance Sheet Only Buy Time?

The main article already argued that Gabay’s 2025 problem was not a lack of assets, but a lack of time. This follow-up isolates the narrower question: did the breach against Mor and the chain it triggered really get cured after the March 2026 IPO, or did the company mostly push the balance-sheet test a few quarters forward.

The short answer is fairly clear: yes, the company appears to have cured the technical chain tied to the Mor loan and the crossed loans. No, that did not cure everything that was tight in the year-end balance sheet. The filings explicitly show that the Mor breach pushed about NIS 143 million from long-term classification into short-term classification. They also explicitly show a working-capital deficit of about NIS 371 million. So even if the Mor-related layer truly moves back into long term, a wider mismatch remains and still has to be worked through via permits, lease-up, surplus release, and refinancing.

There is another point that matters here. The report gives investors two different kinds of headroom. In Series B itself, the picture is fairly comfortable: equity of about NIS 503 million against a NIS 280 million minimum, an equity-to-adjusted-balance-sheet ratio of about 18% against a 15% floor, and a loan-to-collateral ratio of about 73% against an 82% ceiling. That is real disclosed headroom. Against Mor, by contrast, the report does not publish the recalculated post-IPO ratio. It only gives the breach point, 80.5% against an 80% cap, and management’s view that the equity issuance cures it. So in Series B there are numbers. In Mor there is mostly management assessment.

What Was Actually Cured, and What Was Not

This chart is the core of the follow-up. Even if one fully accepts management’s claim that the March 2026 equity raise returns the Mor loan and the crossed loans to long-term classification, the cure only addresses about NIS 143 million. It does not erase the entire year-end picture. A wider mismatch of about NIS 228 million remains, tied to a shorter funding structure against land, future projects, and assets still under construction.

In other words, the breach against Mor was a trigger, not the whole story. Anyone reading year-end 2025 as if the entire problem were only that 0.5-point breach misses that the report itself explains the broader deficit through the project-funding structure. But anyone reading the breach as proof that the company was on the edge of a financing collapse also takes it too far. The waiver, the IPO, and the expected move back into long-term classification do materially reduce the severity of the event.

Series B Clearly Bought Time, but It Also Moved the Test Forward

Series B was a real financing move, not window dressing. In December 2025 the company issued NIS 395.5 million par value at a fixed annual rate of 5.43%. Principal amortizes in four uneven payments: 3% at the end of 2026, 3% at the end of 2027, 3% at the end of 2028, and 91% at the end of 2029.

That is a clear improvement over having Series Y sitting in the immediate window, but it still needs to be read correctly. Series B did not remove the need for refinancing. It mainly deferred the point of stress. Instead of a shorter bond that had to be dealt with now, the company created a bond with a very heavy bullet at the end of 2029. That is valuable time, but not the end of the funding chain.

The proceeds path matters too. The company earmarked the proceeds first for the full early redemption of Gabay Menivim’s Series Y bonds, then for the repayment of bank debt on an asset that had been pledged to Series Y holders, and only after that for general operations. That is why year-end 2025 carried a NIS 364.3 million trust deposit mainly intended for the Series Y redemption. This also explains why the company ended the year with only about NIS 44.9 million of cash and equivalents against about NIS 411.2 million of restricted deposits and project-account balances.

The January 8, 2026 immediate report sharpens the point. On that date the trustee transferred the sums required to repay the full debt to the existing lenders, and Gabay Menivim fully prepaid Series Y on the same day. But the remaining issue proceeds, about NIS 24 million, were still not free at that stage. They were to be released only after the old liens were removed, the mortgages and pledges were corrected in favor of Series B holders at first rank, and additional approvals were delivered. Only by the date of the annual report does the company say that the full issue proceeds had been released.

That creates two very different kinds of cure:

The first cure: removal of the immediate Series Y maturity. That happened in practice on January 8, 2026.

The second cure: turning the issue proceeds into genuinely free cash. That happened only after the security-perfection mechanics were completed.

So year-end 2025 was not a moment when the company simply received NIS 395 million of clean balance-sheet breathing room. It was a moment when one debt stack was replaced by another, through financing plumbing that had not yet fully cleared.

The IPO Likely Cured Mor, but It Does Not Show How Much Room Was Left

On March 11, 2026 the company completed its IPO. It issued 2,583,518 new shares to the public, and gross proceeds amounted to about NIS 174 million. The company states explicitly that the share issue is expected to cure the failure under the Mor ratio and to return the Mor loan and the crossed loans to long-term classification starting with the March 2026 statements.

The practical meaning is straightforward: the direct link between the covenant breach and the short-term classification is likely to disappear. But this is exactly where the report needs to be read with discipline. The company does not disclose the recalculated post-IPO net financial debt to CAP ratio. It also does not disclose by how many percentage points the new cushion now sits below the 80% ceiling. Investors therefore do not know whether the IPO took the ratio down to 79.9%, 77%, or something else. What they know is only that management believes the ratio is cured.

That is not a semantic issue. When a covenant breaks at 80.5% against an 80% cap, the key question is not only whether it moved back below the line, but how far back below the line it moved. A report that does not disclose the revised ratio asks the reader to accept the conclusion without seeing the new cushion.

There is also a financing cost to that cure. In the same chain, Mor received 863,508 non-tradable warrants, equal to about 6.17% of the company’s issued share capital after the offering. The exercise price was set at 90% of the IPO share price, meaning a 10% discount, and the exercise period is three years. The company also recognized a financial liability of about NIS 15.7 million for the relative value of those warrants.

That leads to a two-part conclusion:

1. Yes, the IPO and the waiver do look like a real technical cure. It is difficult to read the explicit statement otherwise that the Mor loan and the crossed loans are expected to move back into long-term classification.
2. No, it was not a free cure. It came together with a 20% equity issuance to the public and with a warrant package to Mor that raises the effective cost of financing.

So the Balance Sheet Bought Time, but Time Still Has to Turn Into Cash

This brings us back to the real question. If Mor is cured, why is it still hard to say the problem is solved? Because the company itself explains that the working-capital deficit does not come only from Mor. It comes mainly from short-term funding against land, future projects, and assets under construction, which are only expected to refinance once building permits or occupancy approvals are obtained.

So even after stripping out the Mor layer, Gabay still relies on a chain of operational and financing assumptions:

• land-backed loans are expected to move into project finance after permits are obtained;
• loans against assets under construction are expected to move into long-term debt after occupancy;
• projects under execution are expected to begin releasing surplus cash;
• and if that is not enough, the company believes it can raise long-term debt in 2026 against future project surpluses.

This chart matters because it shows what actually replaced the idea that “everything is fixed.” The company points to about NIS 54 million of net project surpluses in 2026 and about NIS 133 million in 2027, plus net rental inflows of about NIS 60.5 million in 2026 and about NIS 66.6 million in 2027. These are respectable figures. But they also say that the full balance-sheet repair sits ahead, not already inside the year-end 2025 numbers.

The same logic applies to management’s explanation of the 2025 cash flow. The company says the negative operating cash flow in the period was driven mainly by about NIS 224 million of long-term project investment, especially in Ir HaYayin. That is a reasonable explanation, but it does not remove the liquidity test. It simply relocates the test to whether that investment really converts on time into permits, sales, surplus release, and refinancing.

So the right distinction here is between technical cure and economic cure.

The technical cure has already happened, or is expected to happen in the immediate term:

• Mor is not accelerating the loan.
• the crossed loans received a waiver.
• Series Y was fully prepaid.
• the company expects about NIS 143 million currently classified as short term to move back to long term in the March 2026 statements.

The economic cure is still open:

• the report does not disclose the new headroom against the Mor covenant after the IPO;
• the broader working-capital deficit still depends on refinancing and permits;
• Series B extended tenor but concentrated 91% of principal at the end of 2029;
• and part of the future improvement still depends on 2026-2027 project surpluses and rental cash flow, not on unrestricted cash already sitting in the bank at year-end.

Bottom Line

The more accurate conclusion is that the Mor breach was likely cured, but the balance sheet mainly bought time. The waiver, the IPO, and the expected return of about NIS 143 million into long-term classification remove a technical threat that had become sharp and immediate. Series B also removed a genuinely near-term maturity, Series Y, and replaced it with longer-dated secured debt and a more orderly security package.

But that still does not make year-end 2025 an easy balance sheet. For the cure to be economic rather than merely accounting, Gabay still has to show two things the annual report does not yet show: a clearly disclosed post-IPO cushion against the Mor covenant, and actual conversion of projects and assets under construction into cash, surplus release, and long-term financing.