The Africa-Israel Investments Ltd. (TASE:AFIL) debt settlement saga is reaching its climax. In a court hearing yesterday morning, Judge Eitan Orenstein seemed to imply that Africa-Israel should convene a general shareholders' meeting and request the approval of the company's minority shareholders. However, while estimates are that the latter are expected to vote in protest and reject the sale, due to Africa-Israel's complex situation, in which the company is in fact owned by bondholders, the decision would return to Orenstein, who would have to decide who in fact controls the company (shareholders or bondholders) and who can realize its assets.
Sources familiar with this issue told "Globes" yesterday that if the court eventually approves the sale, the debt settlement could fast-track in a few days with Lev Leviev dramatically improving the company's debt settlement arrangement. With some goodwill from the parties, Africa-Israel could turn into one of the more interesting investments on the Tel Aviv capital market.
"Globes" reports that Leviev would be willing to inject about NIS 500 million in cash into the company, without demanding a debt cancellation. For this generous proposal, bondholders will be required to acquiesce to convert the debt into shares. The company's market cap for the conversion, as well as the conversion rate, would be determined by representatives, the bondholders and the company, but senior capital market sources already told "Globes" yesterday, "Now we can talk business, the train is on the right track. Whether it reaches its goal and how would be determined during talks, but we are definitely on the right track."
Africa-Israel CEO Avraham Novogrocki told "Globes", "The move to sell the property in Russia reflects a value accepted in a definite and overwhelming manner by bondholders, who decided that it is good for them and good for the company. I believe that the court would give us its blessing and enable the overall and complete settlement to begin as early as the next few days."
The new outline would work in the following manner: Africa-Israel currently has a debt of NIS 3.2 billion to bondholders (the debt is to the public, whose money is managed by investment managers who charge substantial management fees in exchange). After the sale of AFI Development plc (LSE:AFID) to Leviev is approved (a deal which might be approved or rejected by the Tel Aviv District Court), NIS 550 million would be injected into the firm (the net sum will be lower, due to index gaps and commissions requiring payments). A further injection of NIS 500 million by Leviev would bring the company to a net debt of NIS 2.2 billion.
At this stage, the more significant talks between the company, Leviev and bondholders would begin. In order to turn Africa-Israel into a solvent company with a significant value to investors, bondholders will be required to convert a debt totaling more than one billion shekels to shares. Without dealing with the conversion rate and Africa-Israel's market cap for the conversion, the company would turn into a holdings company, with a long line of significant assets and a debt of less than one billion shekels to bond holders, a debt which would probably be rescheduled with a longer average duration and more remote payment dates.
Although this outline currently seems to reflect Leviev's willingness to reach a fair settlement with the bondholders, everything would be decided around the negotiating table, when the company's market cap for conversion and conversion rate would be discussed. An unreasonable conversion rate would in fact constitute a significant debt forgiveness, while a reasonable conversion rate would represent a plausible debt forgiveness enabling bondholders to make a recovery (recover the debt and make a profit) along the way.
Assuming that the value of Africa-Israel's assets is about NIS 2 billion and that it has, at present, NIS 3.2 billion debts, after payment from the sale of AFI Development is received, a NIS 500 million injection by Leviev and conversion of NIS 1 billion into shares, the company would have a positive value of NIS 700 million. In such a case, Leviev would maintain control over Africa-Israel, which would manage an annual debt of NIS 100-150 million (principal and interest).
After the sale of AFI Development, Africa-Israel's holdings include 56% of Africa-Israel Properties Ltd., traded at a market cap of NIS 1.75 million, with an equity (correct for the first quarter of 2016) of NIS 2.8 billion. While the company is prone to investor suspicions regarding the lands held in Eastern Europe, capital market sources told "Globes" yesterday that Africa-Israel Properties might be suffering from the problems of (parent company) Africa-Israel and, when these problems are solved, the discount at which Africa-Israel Properties is traded may be reduced.
Further assets include Danya Cebus, which controls 74% of the shares of Africa-Israel Residences Ltd. The latter is traded at a value of NIS 842 NIS and its equity (correct for the first quarter) is NIS 708 million.
AFI Industries (73% of which are controlled by Africa-Israel) is traded at a market value of NIS 220 million and has an equity of NIS 150 million.
Published by Globes [online], Israel business news - www.globes-online.com - on July 27, 2016
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