Alon Holdings Blue Square - Israel Ltd. (NYSE: BSI; TASE: BSI), controlled by Moti Ben-Moshe, is planning to raise at least NIS 200 million in a new Series 5 bond issue on the Tel Aviv Stock Exchange (TASE). The company published a second draft of the deed of trust for the bonds, showing progress towards the issue.
Alon Holdings Blue Square has one outstanding bond series, Series 4, amounting to NIS 941.5 million, with a Baa1 rating and a negative outlook from Midroog. Following the publication of the draft deed of trust yesterday, Midroog announced that the Series 5 bonds would receive the same rating with a negative outlook, indicating a significant likelihood of a downgrade in the near future.
According to the draft deed of trust, the Series 5 bonds will be secured with a senior lien on shares held by Alon Holdings Blue Square in subsidiaries Dor Alon Energy in Israel (1988) Ltd. (TASE:DRAL) and Blue Square Real Estate Ltd. (TASE:BLSR). The rating company says that its basic scenario assumes that the money from the issue is designated to pay for the acquisition of a 55.93% controlling interest in Africa-Israel Properties.
Midroog announced a negative outlook for Alon Holdings Blue Square's debt already in January, after the company submitted a bid to acquire the controlling interest in Africa-Israel Properties (as part of the debt arrangement for parent company Africa-Israel Investments Ltd. (TASE:AFIL)) for an immediate NIS 1.29 billion payment, plus options on the share's future price amounting to NIS 130 million.
In early September, the court approved Africa-Israel's debt arrangement, and Alon Holdings Blue Square is now awaiting completion of the deal. An important part of the agreement depends on Ben-Moshe's completing the finance package for the Extra group and Alon Holdings Blue Square, the two acquiring companies in the debt arrangement.
Midroog says the acquisition of Africa-Israel Properties is part of Alon Holdings Blue Square's expansion strategy, with the aim of creating a major holding group focusing on income-producing real estate. The holding in Africa-Israel Properties is expect to contribute to diversification in the portfolio and resources for servicing the debt, in comparison with the current portfolio, given the diverse uses and geographic dispersal that Africa-Israel Properties would contribute beyond the current holdings, which are focused mainly in Israel.
On the other hand, Midroog believes that the Africa-Israel Properties deal will have a negative impact on Alon Holdings Blue Square's credit risk, in view of the substantial amount of debt accompanying the deal according to the financial outline for it, and taking into account the volume of the cash flow likely to come from Africa-Israel Properties and the burden of repayments resulting from the increase in debt.
Alon Holdings Blue Square holds 69.9% of the shares in Dor Alon Energy, with a NIS 570 million market value, and 57.4% of the shares in Blue Square Real Estate, with an NIS 820 million market value. Alon Holdings Blue Square also holds 100% of the shares in the Naaman Group chain, with an estimated value of NIS 100 million, and NIS 220 million in cash as of the end of June.
Published by Globes, Israel business news - en.globes.co.il - on October 24, 2018
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