Ampal-American Israel Corporation (Nasdaq: AMPL; TASE:AMPL), controlled by chairman Yosef Maiman, and Elbit Imaging Ltd. (Nasdaq: EMITF; TASE: EMIT), controlled by chairman Mordechay Zisser, may be next in line for debt settlements following the underperformance in their bonds on the Tel Aviv Stock Exchange (TASE), which have sent their yields soaring, reflecting investors' worries that the companies will not be able to make upcoming bond payments on full and on time.
Prices for Elbit Imaging's bonds have fallen by 18% and prices for Ampal's bonds have fallen 11%, sending their yields to over 30%. At the same time, Elbit Imaging's share price has fallen 14% and Ampal's share price has fallen 18%, further reducing the two companies' already shrunken market caps.
Ampal's share price fell 15.8% on Nasdaq yesterday to $0.59, giving a market cap of $33 million, and Elbit Imaging's share price fell 15.8% to $4.41, giving a market cap of $112 million. Ampal fell 18.1% on the TASE on Sunday and 2% yesterday to NIS 2.06, and Elbit Imaging fell 13.6% and 4.1% to NIS 15.56. The TASE is closed today for the Tisha B'Av fast.
Elbit Imaging is still hurt by Eastern Europe's crisis
Questions about Elbit Imaging's ability to meet its bond payments have risen before. In late May, "Globes" reported that Europe Israel (MMS) Ltd., through which Zisser controls Elbit Imaging, was struggling to meet the terms of NIS 1 billion debt to Bank Hapoalim (TASE: POLI). Europe Israel took the loan to finance the acquisition of Elbit Imaging. The report sent the prices of Elbit Imaging's shares and bonds plummeting, and prompted rating companies to put the bonds on their watch lists with "Negative" outlooks.
That storm appeared to have passed - until renewed worries in global markets, especially in Europe, where Elbit Imaging conducts most of its real estate business through Plaza Centers NV (LSE:PLAZWSE:WLZ). The nature of the company's business - developing malls - involves the assumption of heavy debts that are paid off at the sale of the properties. The strategy worked well before the global crisis that began in 2008. But those debts are now hurting the company given the conditions in Eastern Europe, which are affecting the ability to sell properties for good prices.
Elbit Imaging's solo debt was NIS 3.2 billion at the end of March, including NIS 3 billion owed to bondholders. The company's shareholders' equity was NIS 775 million, and it had about the same amount in liquid assets.
Elbit Imaging is due to pay bondholders and banks NIS 1 billion by the end of 2013, and the company believes that its cash and expected cash flow from the sale of properties should be enough to do so. The company is also planning NIS 340 million of new investment over the same period.
Elbit Imaging's biggest problem is two bond series of Plaza Centers, whose current yields are 13-16%. Plaza Centers is due to pay NIS 100 million in 2011 and NIS 460 million in 2012, out of a total bond debt of NIS 1.3 billion.
Despite this, Elbit Imaging is pursuing its regular operations. Last month, it completed its joint takeover of Australian EDT Retail Trust (ASX: EDT), which owns income-producing properties in the US, for $242 million. Elbit Imaging's share of the investment was $57 million. The company's partners in the venture, EPN EDT Holdings II LLC, are Menorah Mivtachim Holdings Ltd. (TASE: MORA) and Eastgate Property LLC.
Elbit Imaging, "In the previous quarter, the company published a detailed investors report on sources and uses, which included execution of the company's business strategy, the creation of value, and company's cash flow. Elbit Imaging can meet its commitments and bond repayments."
Ampal: Egyptian gas is losing its competitiveness
The worries of Ampal's bondholders come from Egypt and the company's 12.5% holding in East Mediterranean Gas Company (EMG), which supplies Egyptian natural gas to Israel. Ampal bought the holding from Maiman for $2 billion The Egyptian revolution hit Ampal hard, as a series of attacks on gas pipelines in Sinai disrupted gas deliveries to Israel. There have been no deliveries at all since the last attack in mid-July. Midroog Ltd. cut its rating for Ampal's bonds to Baa3, one level above severe credit risk.
Ampal's share price has fallen 75% since the beginning of the year as EMG's troubles affected it. EMG did not distribute a dividend for the first quarter, and Ampal reported a net loss of $40 million for the second quarter, mainly due to EMG.
Ampal had $134.3 million in cash at the end of June, and a solo debt of $379 million, including $283 million to bondholders. Most of the company's cash came from the sale of 012 Smile Telecom Ltd. to Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) for $190 million in the first quarter, the proceeds of which are enough to meet bond payments for at least the next two years.
Subsequently, however, Ampal can bring in an investor, hold a secondary offering or sell Gadot Chemicals Tankers and Terminals Ltd. (TASE: GDOT), which it books at a value of $115 million, to meet its commitments.
Ampal said, "The company's current policy is to use its profit balance to finance business operations and to repay or buy back the balance of its current debt, including bonds traded on the TASE."
Published by Globes [online], Israel business news - www.globes-online.com - on August 9, 2011
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