"Africa-Israel has shocked Israel's capital market," was the headline given by Clal Finance research department director Yuval Ben-Zeev to his reaction to the warning published today along with its results by Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY).
Ben-Zeev continued that Africa-Israel "is not left with simple measures to implement, although in defense of the company and its controlling shareholder (Lev Leviev) it should be said that over the last 18 months the company has taken many steps to cope with the financial crisis, beginning with raising NIS 1 billion through an extensive sale of assets. It now looks like the relatively simple measures have been taken and there are no more rabbits in the hat or low-hanging fruits to be picked. From hereon it will be much more difficult and more painful measures are required."
He added, "It is still too early to say how it will all end but our initial estimate is that it will hurt everybody. The solution must come in the end from debt arrangements of various types. The shareholders will be the first to get hit. Without a debt arrangement there is concern that shareholders will lose most of their investment. The controlling shareholder understands this and therefore it is to be expected that the arrangement with bondholders will include a significant dilution in the company and/or payment in shares of the subsidiaries."
Ben-Zeev said, "Short-term bondholders will be hit hard. Apparently the company can pay its short-term bonds on time and cope with the medium and long-term bonds when the time comes. However, the company prefers to put all bondholders on an equal footing and reach an agreement with them all. As a result the short-term bonds which are traded near their par value will be the first to be hit."
He added, "The long-term bonds will be hit but probably by less. It is reasonable that in the short-term, the long-term bondholders will also be hurt, but we believe that bonds traded this morning at NIS 0.50-0.60 are likely to earn profits from the arrangements in the medium term, even if they receive NIS 0.80. The banks will be hurt but by less. The group has high debt to the banking system but most of the debt is with the subsidiaries and backed by assets so that the harm will be less, compared with the bondholders."
In early afternoon trading on the TASE, Africa-Israel's share had plunged 25.6% to NIS 51.42.
Published by Globes [online], Israel business news - www.globes-online.com - on August 30, 2009
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