Africa Israel Investments is approaching another potential debt arrangement - six years after concluding a settlement that was unprecedented for the local capital market. On Monday morning, the company said it would have to repay NIS 5 billion of bonds (principal and interest) in the coming decade.
“Following requests from bondholders from different series and after discussions held with the trustees of the bonds, the company is proposing principles for an interim agreement with the bond holders until March 2017.”
Africa Israel has three bond series - Kaf Vav, Kaf Het, and Kaf Zayin - with a total nominal value of NIS 3.5 billion.
The company is not suffering from a short-term liquidity crisis - its liquid reserves at the end of the third quarter in 2015 stood at NIS 1.86 billion, with NIS 1 billion in cash and cash equivalents. However, the bondholders are worried the company will be unable to pay its medium and long-term debts.
The concern is fueled by the Russian financial crisis, which hurt the company’s operations in the country and substantially devalued its local assets. The company's market cap dropped by NIS 350 million after its share price dropped 50% in the past year - and 80% in three years.
Now the board of directors has a proposal for the bondholders - to bring forward the principal and interest payments for Kaf Vav and Kaf Zayin series holders (a total of NIS 355 million) by two months to March 1. However, the company will not compensate bondholders for the early repayment. Additionally, the company will pay Kaf Het bondholders on March first NIS 59 million of the principal due them in March 2018.
Company managers said it would explore the possibility of also bringing forward the interest payments on all bonds from November 2016 to September 2016, depending on the expected cash flow Africa Israel will report in August 2016 - along with its fourth quarter reports.
“Working to reach an agreement”
Africa Israel’s management agreed to a variety of restrictions during the interim period, including not making payments to the family of the controlling shareholders beyond their compensation for their employment.
CEO Avraham Novogrocki said on Tuesday the company “continues to work according to a clear business plan which emphasizes the development of subsidiaries and increasing our financial flexibility in order to better service our debts in the coming years.”
During its last debt arrangement, the company owed bondholders NIS 7.6 billion. Since the agreement was signed in May 2010, the company has fulfilled its obligations to bondholders, while controlling shareholder Lev Leviev has injected NIS 750 million into the company.
But it is unlikely Leviev will reach into his own pocket again if Africa Israel enters another debt arrangement, leaving the company more dependent than in the past on asset sales and dividends from its subsidiaries and holdings.
“Leviev remains the major variable”
Meanwhile, market experts increasingly believe Africa Israel will soon enter another debt arrangement. Meir Slater, head of research at Jerusalem Brokerage, predicted the imminent settlement two months ago.
Speaking to “Globes” on Monday, Slater said: “In the current circumstances in Russia - with oil and the ruble failing to recover - we will undoubtedly see a debt arrangement. Management essentially bought some quiet today for the next year by reassuring its bondholders - because there was a conflict of interest between Kaf Vav and Kaf Zayin series holders and holders of series Kaf Het bonds.
“The story here is about buying time, because the value of AFI Development plummeted and its net asset value is currently negative. This is all in the hope the Russian situation improves.”
If there is a new debt arrangement, what should we expect?
“The major variable is Leviev. I believe that if there is another debt arrangement - and certainly if Leviev injects cash - it will include a debt restructuring and maybe even the granting of shares in subsidiaries to bondholders. But it all comes down to Russia; if the situation there continues for an extended period, no debt arrangement will help. At the end of the day, the value of the assets is lower than the value of the liabilities and the creditors will not receive everything they are owed.”
Published by Globes [online], Israel business news - www.globes-online.com - on February 16, 2016
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