Last week's dramatic developments in the Russian economy, following the crash in global oil prices and the devaluation of the ruble, have meanwhile especially affected Mirland Development Corporation plc (AIM:MLD; TASE: MRLD.B1), which operates on behalf of Eliezer Fishman's real estate companies in the Russian market. Mirland's share has lost 64% of its value this year, while the prices of its Series C, D, E, and F bonds plummeted 10-23% to NIS 0.33-0.37 today, reflecting a yield to maturity of up to 225%, after the company halted payment of its debt to holders of its short-term Series A and B bonds, in which there was no trading today.
Last Thursday night, the company stated, "In view of the volatile situation in Russia… and in answer to a query to the company from its bondholders, the board of directors has decided at this point to postpone payments of principal and interest to holdings of Series A and Series B bonds until December 31, 2014." Trading in the two series was halted following the announcement. Mirland announced today that the payment date would be postponed to January 8, 2015, i.e. two and a half weeks from now, and stated, "The trustee has agreed to the postponement."
Mirland added, "The devaluation in the exchange rate has had a substantial impact on the company's results and liquidity. We will open a dialogue with the bondholders, and do our best to arrive at an agreed schedule for the benefit of all sides."
Mirland has six bond series listed on the local stock market with an aggregate total of NIS 930 million. The two series for which the company announced a postponement of payments are the smallest, amounting to NIS 80 million. The upcoming payment amounts to half of that sum.
The state of Mirland continues to affect the situation of its controlling shareholder, Jerusalem Economy Ltd. (TASE:ECJM) (JEC), whose share posted large losses as a result of concern among investors that it would have trouble repaying its debt. The share of the company, a holding company for Fishman's public real estate companies, was down 15%, completing a 59% dive this year and reducing the company's market cap to NIS 1.1 billion. The company's long-term bonds fell by up to 15% today, and are current traded at a return to maturity of up to 18%. The share of Industrial Buildings Corp. (TASE: IBLD), a subsidiary of Jerusalem Economy that also holds Mirland, was down over 6% today, and its bonds were traded at losses of up to 5%.
Sources close to the Fishman Group said today, "The consequences of the crisis in Russia for the financial situation and cash flow of Jerusalem Economy, Industrial Buildings, and Darban Investments Ltd. (TASE: DRBN) should not be significant. These companies have cash that should be sufficient for their cash flow needs in the near future, as indicated by their reported cash flow forecast.""
Mirland engages in the acquisition and development of commercial, office, logistics, and residential real estate projects in Russia. The company's activity currently focuses on commercial and residential real estate. The announcement of a postponement of payment on its bonds follows a demand from some of its investment institution bondholders, where fear that the current payment of the short-term series will detract from its ability to meet its coming payments to its preferred creditors.
At the bondholders meeting scheduled for tomorrow, joint action by the holders of all the bond series is expected "for the purpose of protecting their rights and exercising their rights, with the possibility of instituting legal proceeds to protect their rights, appointment of a joint delegation of bondholders, consideration of the appointment of specialists and advisers for representation vis-a-vis the company, and appointment of a lawyer to represent them."
Following Mirland's announcement, the rating companies at the end of last week announced a downgrade of the companies rating to levels close to those reflecting bankruptcy. Midroog lowered the rating for the bonds from Baa1 to B1, with a negative outlook, stating that this was "done as a result of further negative developments in the Russian economy and the company's liquidity, especially in view of a substantial worsening in its access to financing in both the capital market and the banking system."
Midroog added, "Since at this stage, there is uncertainty about the financial value of the company's assets in the market, especially the ability to make them liquid if a rapid sale is necessary, the rating does not yet include the recovery rate of the bond debt under a bankruptcy scenario." At the same time, Midroog said it was re-evaluating the rating of the bonds of the companies with holdings in Mirland - Jerusalem Economy, Industrial Buildings, and Darban - as a result of the negative consequences.
S&P Maalot downgraded Mirland's rating to CC with a negative outlook, noting that the company's rating would drop to SD or D (bankruptcy) if the company does not meeting any periodic payment whatsoever in full.
Eliezer Fishman is the controlling shareholder in "Globes."
Published by Globes [online], Israel business news - www.globes-online.com - on December 21, 2014
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