A day after the dramatic announcement from Africa-Israel Investments (TASE: AFIL) that it would not be able to meet its obligations to bondholders, the positioning among investors begins. Yesterday, the trustees of all the company's bond series held an urgent meeting, and it was decided to convene a joint bondholders meeting for all series next week. Africa-Israel managers have already started to hold meeting with the large institutions that hold the company's bonds.
Psagot Investment House Ltd. CEO Roy Vermos said today, "We will work to improve the balance sheet structure of the company, and will seek injections of capital or assets from the controlling shareholder. We will also consider converting part of the debt into shares, and will let the company operate, in order to improve its assets."
Meanwhile, Africa-Israel's share and bond prices are not recovering. After the company's share price plunged 25% yesterday, it fell another 13% today. The company's bonds also suffered from negative sentiment, and lost an average of about 8% today. In the past two days, yields on Africa-Israel bonds have soared to as much as 115%, reflecting investors' low faith in the company's ability to repay its debt.
Capital market sources say that reaching a debt arrangement will be a difficult and complicated task, mainly because there are thirteen bond series, amounting to some NIS 9 billion, and each series has its own characteristics and interests that may clash with those of the others.
The sources say that many private investors have invested in the bonds recently because of their low prices, which made them look like an investment opportunity. “The fact that the general public holds a large proportion of the bonds is liable to complicate the process of reaching an arrangement,” one market player said.
Despite the voices heard calling for removing the controlling shareholder in the company and its chairman Lev Leviev from his post, it seems that the institutions are in no hurry to demand such a move. “Yesterday, Leviev basically acknowledged that the business was no longer his, but since Leviev himself apparently has decisive influence on some of his businesses, it is not at all clear that it is worthwhile replacing him,” an institutional investor said.
Vermos said, "If a controlling shareholder in a company can improve its repayment ability, there is no reason for him not to continue to lead it."
Another question on which the institutions are divided is the quality of the collateral the bondholders can obtain. Vermos said, "It must be taken into account that a large part of the assets today are not mortgaged to the banks, so in a bondholder arrangement we will add these guarantees, in dialogue with the banks." A representative of one of the large institutional bondholders in Africa-Israel added, “Clearly, Africa-Israel cannot continue realizing asset in order to meet upcoming interest and principal payments. Therefore, the company will not meet payments even on its long-term bonds, and soon the shares too will be worthless.”
By contrast, the manager of another institution believes that “the problem is that Africa-Israel has no collateral to give, and so it is clear that dilution will be required here.” The same person also said, “Just postponing debts won’t help. Leviev will have to inject money into the company personally, and the key test for him lies in the mines and private businesses, and there, the unknowns are greater than the knowns.”
Published by Globes [online], Israel business news - www.globes-online.com - on August 31, 2009
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