Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY) chairman Lev Leviev, who owns 75% of the company, has no intention of losing control of it, despite his responsibility for its financial troubles. During preliminary talks on a debt settlement between the company's management and institutional investors who own various company bonds, Africa-Israel asked the bondholders to forego a huge debt of NIS 2.9-3.5 billion in exchange for equity, in an arrangement that will leave Leviev in control.
Africa-Israel's management offered the institutions 18-25% of the company and similar stakes in subsidiaries Africa-Israel Properties Ltd. (TASE: AFPR), Africa-Israel Residences Ltd. (TASE:AFHS), Africa-Israel Industries Ltd. (TASE: AFID), Danya Cebus Ltd. (TASE: DNYA), and AFI Development plc (LSE:AFID).
The institutions want a much larger stake, which will turn them into the majority shareholders in Africa-Israel and the subsidiaries. However, the institutions are divided among themselves over whether to keep Leviev on as an asset because of his connections in Russia.
If the arrangement that Africa-Israel wants goes ahead, it will reduce the debt from the current NIS 7.4 billion (and NIS 9 billion including future interest and linkage) to NIS 3.9-4.5 billion. Africa-Israel's current aggregate holding in the four subsidiaries in question is about NIS 3 billion.
In addition to the debt for equity swap, the preliminary talks also discussed the issue by Africa-Israel of a capital note to the bondholders amounting to NIS 2.4 billion. The capital note will be convertible into Africa-Israel shares at no interest or linkage for 15 years. The company will also issue to the current bondholders a new bond series, amounting to NIS 1 billion, bearing 6.5% interest and having a duration of five years. The bondholders want liens on the new bond series and for Leviev to personally inject NIS 1 billion into the company. Until now, he has avoided putting his hand into his own pocket.
If a debt settlement is reached, Africa-Israel's debt will be slashed, and it will emerge as a holding company with a much smaller solo debt. The institutional investors are not satisfied with this, and they want the company to streamline its headquarters, after its administrative and general expenses totaled NIS 160.6 million in the first half of 2009. The institutional investors claim that the company pays its executives too much.
At this stage, it seems that the institutions' militancy and Africa-Israel's proposals are just the opening moves in the poker game between the parties. The bondholders have not yet appointed representatives, but the four bond trustees have promised to publish the results of the vote on the representatives by the end of the week. Only then can proper negotiations begin.
Africa-Israel's share rose 2.9% by mid-afternoon today to NIS 43.30, giving a market cap of NIS 2.33 billion.
Published by Globes [online], Israel business news - www.globes-online.com - on September 21, 2009
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