Deutsche Bank analyst Dan Harverd has upgraded Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY.PK) from "Sell" to "Hold", saying the company's value depends now more on the debt restructuring negotiations with bondholders than on its fundamentals.
Harverd does not give a target price for the company, since the outcome of the negotiations cannot be predicted. He previously had a target price of NIS 35.
The Deutsche Bank analyst believes that Africa Israel controlling shareholder Lev Leviev will want to retain control of the company, which will probably require a capital injection by Leviev. Bondholders will probably be in favor of Leviev retaining his control, "given his added value to the Russian subsidiary in particular that is a main source of future cash generation".
For shareholders in Africa Israel, the negotiations with bondholders can result in several scenarios, with differing effects on the value of their shares.
If bondholders convert some of their debt into shares in the company, the ratio of how much equity they receive in lieu of their bonds will impact shareholders, to an as-yet unknown extent.
If bondholders agree to forego some principal payments, or if banks write off some of their debts, shareholders will gain. Additionally, if bondholders attempt to liquidate the company, they have priority over shareholders with regard to the company's assets.
Harverd points out that Africa Israel has said that it will not discriminate between the holders of different maturities during negotiations, meaning in practice that it will not repay principal due later this year.
Shares in Africa Israel jumped 14.1% yesterday on the Tel Aviv Stock Exchange (TASE), and added an additional 8% by late morning today.
Published by Globes [online], Israel business news - www.globes-online.com - on September 17, 2009
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