Institutional investors are readying themselves for execution of the debt settlement of Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY). Sources inform ''Globes'' that, in the past week, there has been heavy demand, estimated in the tens of millions of shekels, to short sell Africa-Israel shares.
As of last Thursday, short selling of the stock totaled NIS 35 million, and market source say that the figure has doubled in the past week.
Short selling is usually carried out by speculators, who expect the price of a share to fall, and seek a profit in the tumble. However, in the past week, speculators have not been the only traders short selling Africa-Israel; they have been joined some institutional investors that own the company's bonds.
The reason for the institutions' short selling of Africa-Israel shares is the debt settlement, in which bondholders will convert NIS 1.4 billion in debt into equity at NIS 36 per share. This is less than today's opening price of Africa-Israel's share of NIS 46. The share price fell 3.5% today to NIS 44.40.
It cannot be ruled out that execution of the debt settlement will put downward pressure on Africa-Israel's share, as institutional investors seek to reduce their exposure to the company's shares by selling them on the market. By short selling Africa-Israel at its current share price, institutional bondholders fix the amount they will get for the shares.
Fixing the price is critical in the case of Africa-Israel's share, which is highly volatile, especially since many analysts believe that the share is currently overpriced, and that it ought to fall further.
The pressure on Africa-Israel's share is substantial even before the debt is converted into equity; the share price has fallen over 15% since Monday.
Published by Globes [online], Israel business news - www.globes-online.com - on November 5, 2009
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