Africa-Israel Investments Ltd. (TASE:AFIL), controlled by chairman Lev Leviev, is utilizing its cash reserves, and has announced a new bond buyback program. The company will buy back NIS 400 million worth of its series 26 and 27 bonds.
The series 26 bond is currently traded at a gross annual yield of 8.15%, after a 20% rise in its price over the past three months. The series 27 bond is currently traded at a gross annual yield of 7.92%, after a 23% rise in its price over the past three months.
"The purchase of securities will be carried out in line with opportunities in the market, at dates, prices, and amounts that the company's management will determine," said Africa-Israel. "Before approving the buyback, the company's board of directors reviewed the sources of financing available to the company for the purpose of meeting its commitments and for the buyback, including the company's projected cash flows over the next two years, on one hand, and its various commitments during the period on the other hand. The company's board reviewed its cash reserves and liquid assets, and its commitments to bondholders and banking institutions."
Africa-Israel sold assets for NIS 1.24 billion in 2011-13, accumulating liquid cash reserves.
Africa-Israel adds that, although the buyback will reduce its liquid cash reserves, it believes that the plan will not affect its ability to continue its current and expected operations, or its ability to meet its commitments.
The company believes that given the market conditions and the prices of its bonds, which are long-term bonds, the buyback is a proper use of part of its cash reserves, since it will result in a surplus notional yield compared with other investments, and that it will create substantial savings in the company's future financing expenses. Therefore, "Implementation of the plan will improve the company's capital structure and financial ratios, which will reduce the cost of raising capital and debt by the company."
IBI Investment House analyst Shai Azar says, "This is a positive announcement for the bondholders. After the failure in obtaining approval for early repayment to the bondholders, it seems that, following the closing of deals in Russian and the US, sources have become available to the company to carry out the original plan, which is a bond buyback. The announcement of the buyback is positive, and it can support rising prices for the bonds (the company does not mention a specific series), but to carry out a buyback of this size, the company will have to sell more assets, probably land in Los Angeles, the old New York Times building in Manhattan, and three other buildings in the Ozerkovskaya project in Russia."
Published by Globes [online], Israel business news - www.globes-online.com - on January 20, 2014
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