Africa-Israel Investments Ltd. (TASE:AFIL) and its bondholders continue to negotiate over a second debt arrangement. The company, controlled by Lev Leviev, notified the Tel Aviv Stock exchange today that Leviev and the bondholders "are holding discussions to formulate an agreed plan for the sale of the company's entire holding in AFI Development" for an amount that according to market estimates will be about NIS 550 million, valuing AFI Development at nearly NIS 900 million, almost three times its current market cap on the London Stock Exchange, which is £62 million (about NIS 320 million).
Africa-Israel's share price responded to today's announcement by jumping 10%, and its bond series rose by up to 13%. AFI Development also rose sharply in London.
AFI Development, of which Africa-Israel owns 65%, deals with the group's development of income-producing and residential real estate in Russia.
Bank of Jerusalem research manager Meir Slater said today, "The principles of the arrangement being formulated provide cash to the bondholders, but also fix their loss, since the group's main upside is from AFI Development, which depends on recovery in the Russian market, and now they are fixing a loss on this investment. If in the end the arrangement also includes an option on AFI Development that could give the bondholders a 'lollipop'. But all in all it's not a bad deal for the creditors, given the current situation." Epsilon Investment House head of research Ben Novo-Shalem said today, "If Leviev does buy the shares in AFI Development at a company valuation of NIS 850 million, the recovery rate on Africa-Israel's bonds could reach 70-80%."
The possibility of a sale to Leviev of the shares in AFI Development has been on the agenda for several weeks as one of the ways of him injecting capital into Africa-Israel and retaining control of it. 85% of the holding in AFI Development is mortgaged to the bondholders. In addition to the consideration received from Leviev, the arrangement will probably also include extension of the duration of the bonds, a reduction in the interest rate, and an allocation of Africa-Israel shares to the bondholders. Africa-Israel's total debt to its bondholders is NIS 3.2 billion in three bond series, after the previous debt arrangement, signed six years ago, cut its net debt to NIS 2.8 billion at the end of 2010, compared with NIS 7.4 billion at the end of 2009.
Published by Globes [online], Israel business news - www.globes-online.com - on July 18, 2016
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