Merchavia: The parent-company liquidity and dilution test
The active bottleneck at Merchavia is still the parent-company layer: at the end of 2025 it had NIS 734 thousand of current assets against NIS 2.456 million of current liabilities, and most of that gap was already being financed in practice by related parties. Even the post-balance-sheet credit line is only a conditional bridge and has already been partly used, so the dilution test is still open.
This Is Not A Valuation Test. It Is A Cash-Access Test
The main article already made the core point: CDX improved the quality of the portfolio, but the active bottleneck remained at the parent company. This follow-up isolates only that layer. The question here is not what the holdings may be worth on paper, but how much cash is actually accessible at the top, who is funding the gap until then, and where dilution still sits in the story.
The short conclusion: the pressure at Merchavia is not only a small cash balance. It comes from the fact that almost the entire parent-level liquidity bridge already leans on related parties, that the credit line approved after the balance-sheet date is conditional and already partly used, and that the one asset that could still return cash in the visible horizon, the ITS loan, still does not allow the company to state either the timing or the net amount of the proceeds.
The Real Deficit Is Larger Than The Headline Number
In the business description the company presents a negative working capital figure of NIS 971 thousand at the end of 2025. That number is correct, but it is not the full number. That table includes cash, the restricted deposit, receivables, suppliers and payables, but it excludes the controlling-shareholder loan that was booked at year-end as a current liability of NIS 751 thousand.
The sharper picture appears in the statement of financial position: NIS 734 thousand of current assets against NIS 2.456 million of current liabilities. That is a gap of NIS 1.722 million, not NIS 971 thousand. At the same time, the liquidity-risk note says explicitly that all of the company's financial liabilities mature within a year. So the pressure here is neither theoretical nor distant.
| Item | End-2025 | Why it matters |
|---|---|---|
| Cash and cash equivalents | NIS 352k | Truly free cash is very small |
| Restricted deposit | NIS 50k | Limited liquidity, not a full cushion |
| Receivables and other balances | NIS 332k | Not a substitute for cash |
| Total current assets | NIS 734k | This is the entire short-term asset base at the parent |
| Controlling-shareholder loan | NIS 751k | Current, due within a year |
| Suppliers and service providers | NIS 530k | Includes NIS 97k to related parties |
| Payables and accrued expenses | NIS 1.175m | NIS 1.126m of that is to related parties |
| Total current liabilities | NIS 2.456m | Entirely short-term pressure |
The less obvious point is that this wall is already being financed mainly from inside. Out of the NIS 2.456 million of current liabilities, NIS 1.974 million is owed to related parties: the shareholder loan, related-party balances within suppliers, and related-party payables. That is a little more than 80% of the entire current-liability stack.
And even inside that related-party layer there is another form of soft support that matters. Out of the NIS 1.126 million of related-party payables, NIS 166 thousand owed to the CEO and NIS 517 thousand owed to the chairman had not been withdrawn in cash, and both undertook not to demand repayment while they continue in office or until the company raises capital or holds enough cash to fund 12 months of activity after the payment. That does reduce immediate stress. But it also says something simpler: the company is already living on internal payment deferral.
2025 Bought Time, It Did Not Solve Liquidity
If 2025 is read through an all-in cash-flexibility lens, the result is clear. Operations used NIS 1.456 million of cash. Investing used another NIS 2.477 million, mainly portfolio investments. Financing brought in NIS 2.903 million. By year-end cash had dropped from NIS 1.382 million to NIS 352 thousand.
That means the year did not create flexibility. It mainly pushed the decision point forward.
The composition of financing matters just as much. 2025 included the rights offering completed in January, another equity raise in July, and the shareholder loan of NIS 770 thousand. In other words, the dilution test did not begin tomorrow morning. It already began in 2025. The parent got through the year via equity issuance and insider funding, not via natural upstream cash from the portfolio.
That connects directly to the going-concern note. Management states explicitly that the cash balances it had when the statements were approved are not sufficient to support ongoing operations in the foreseeable future, and that continued activity and timely repayment will require additional capital, portfolio monetization, expansion of the distribution activity, or collection of the historical loan made to others. When that is management's own wording, dilution is not a tail case. It is one of the stated work paths.
The February 2026 Credit Line Is A Conditional Bridge, Not A Capital Solution
At the report date the company still had no credit lines. Only after the balance-sheet date did the controlling shareholder provide an important relief valve: in February 2026 a cumulative credit line of up to $600 thousand was approved, unsecured, for two years, at 4% annual interest. On a first read that sounds like breathing room. On a closer read it is mainly a short bridge.
First, this is not hard capital already sitting in the account. Under the agreement the controlling shareholder may, but is not obligated to, approve each draw. Every draw requires his prior written approval. Second, the September 2025 loan of $233 thousand already counts against the facility. Third, the annual report says that in March 2026 the company drew another $170 thousand. That means $403 thousand out of the $600 thousand had already been consumed by then, leaving only about $197 thousand of undrawn headroom, assuming no repayment.
The repayment terms matter more than the headline too. Every draw is due within 12 months of being made. The company may ask for a deferral or rescheduling, but only with the shareholder's prior written consent. And the shareholder has the right to demand early repayment if the company raises money in a public offering above the outstanding balance drawn from him, or if an exit or asset sale generates enough cash for 12 months of operations.
That is exactly where dilution re-enters the picture. If the next rescue valve is public equity, not every new shekel is guaranteed to remain available to the parent. Part of it may first meet the controlling shareholder's early-repayment right. Even the September 2025 loan itself was granted at 4%, while the company assessed market rate at about 6.15%, so here too the picture is one of insider support, not normal access to capital.
That does not mean the facility is unhelpful. It clearly reduces short-term tail risk. But it does not replace capital, and it does not erase the dilution test.
The ITS Loan Is A Book Asset, Not A Funding Source You Can Underwrite
The alternative path presented by the company itself is collection of the old loan to ITS Specializations. On the books, that asset stands at NIS 2 million. In the execution-office file, the debt balance already stands at about NIS 6.5 million. In January 2026 the company reported that a property in Kfar Baruch owned by one of the guarantors had received court and cooperative approvals for sale at net consideration of about NIS 3.35 million. On the surface that looks like good news for liquidity.
The problem is that this is exactly where the company is most cautious. It says explicitly that the asset is not pledged in its favor, that its rights arise only from its status as a creditor in the legal process, and that it cannot reliably estimate the timing of the net proceeds or their final amount, if any. The annual report repeats the same point and adds that only if there are no unexpected delays is completion expected in the second half of 2026.
| Layer | Figure | Why it is not equivalent to cash |
|---|---|---|
| Carrying value of the loan | NIS 2.0m | This is a recovery estimate, not a receipt |
| Debt balance in the execution file | About NIS 6.5m | Larger legal debt, but not near-term accessible liquidity |
| Net Kfar Baruch sale consideration | About NIS 3.35m | Sale consideration is not the same as proceeds guaranteed to the company |
| Estimated completion timing | H2 2026, if no delays | Timing is still uncertain |
| Proceeds actually reaching the company | Not reliably estimable | That is the crux of the issue |
So this loan is indeed a recovery option. It is not a hard funding base. As long as the company itself refuses to state a net cash amount and timing, a disciplined liquidity analysis cannot put this asset into the parent-company cash bridge as if it were already money in hand.
Conclusion
Merchavia's liquidity test is no longer about whether assets exist. They do. The issue is that most of the routes that connect those assets to the parent already pass through layers of dependence: related parties who defer payment, a controlling shareholder who provides a loan and a credit line on favorable terms but keeps discretion over every draw, and a legacy loan that may eventually bring cash but still does not allow the company to name either the timing or the amount.
That is also where the dilution test comes from. If before the ITS loan turns into a clear receipt, or before one of the portfolio assets starts sending real cash up to the parent, the company needs the equity market again, it will not arrive there from a clean position of strength. It will arrive after already leaning on insider financing, and with a structure in which part of the near-term relief may flow back out through early repayment of that same insider bridge.
The follow-up thesis in one line: at Merchavia, the issue is no longer identifying value. It is buying enough time without another round of dilution before that value becomes accessible.
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