Analysts today voiced their opinion on the debt settlement Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY), controlled by chairman Lev Leviev, reached with its bondholders on Friday.
Clal Finance analyst Yuval Ben-Zeev reiterated his "Buy" recommendation for Africa-Israel's bonds. "On average, the bonds were traded on the TASE on Thursday at 54% of their adjusted value. On the basis of the valuation of the assets package in the settlement (84-94%), we believe that investors get a lot of value on purchases at the current price."
Ben-Zeev, however, also advises selling Africa-Israel's shares. "On the face of it, the debt settlement and the survival of the company should bring optimism to the share, but we do not think so. First of all, on the basis of the net asset value (NAV) model, the shares are worth only NIS 15. Even if we assume a rise in value of subsidiaries, the value is still far below Thursday's closing price.
"Buying Africa-Israel shares at NIS 50 per share (today's opening price) means buying Africa-Israel Properties Ltd. (TASE: AFPR) at NIS 100 per share (compared with today's opening price of NIS 60) and AFI Development plc (LSE:AFID) at $5.50 per share, compared with its current price of $2.30 on the London Stock Exchange.
"Second, there is now concern about heavy sellers' pressure in shares of both Africa-Israel and its subsidiaries AFI Development and Africa-Israel Properties. It is quite probable that some bondholders who get shares in these companies will want to reduce their exposure to the group, which will create heavy pressure on the shares."
"Globes": What is the significance of the debt settlement?
Ben-Zeev: "The settlement enables Africa-Israel to survive. Nonetheless, even after the settlement, we're still talking about a heavily leveraged company with NIS 4.5 billion net debt."
IBI Investment House analyst Shai Lipman says, "The bondholders are getting a return equal to NIS 7.6 billion, which is the extent of the debt, so the settlement is fair and drastically reduces their hit. This is why we believe that that the banks and the Series 9 bondholders will also ultimately accept it. As things appear, it will include a greater cash and short-term debt component.
"It's impossible to ignore the fact Leviev is injecting NIS 750 million into the company. This is a large amount that testifies to his strong desire to remain the controlling shareholder and his great confidence in the latent potential of its business, and not only in Russia. There is hope that this will begin the process of rebuilding confidence and continuing the collaboration between the company and the capital market."
Leader Capital Markets analyst Alon Glazer says, "The bondholders got nice things, including a capital injection by the controlling shareholder. It is to Africa-Israel's credit that its conduct was honorable in terms of anticipating problems in time, dealing with them, and the capital injection by the controlling shareholder.
"Both parties have an interest in keeping the company alive. The institutions got a lot in the settlement, and the company got what it needed the most right now - time. If in the past it had raised properly spread out long-term debt, then it might have withstood the crisis without a debt settlement."
Africa-Israel's share rose 5.5% today to NIS 52.24, but Africa-Israel Properties' share fell 3.3% to NIS 58.
Published by Globes [online], Israel business news - www.globes-online.com - on November 1, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009