Africa-Israel bondholders scupper early repayment

Africa-Israel Investments Ltd. (TASE:AFIL) today announced that its request to amend the terms of its deed of trust on its bonds has been rejected by the bondholders. The company asked the bondholders to accept early repayment of NIS 1.5 billion (out of the total bond debt of NIS 3.4 billion), at better terms for the company compared with the fine set in the deed of trust.

Now that the terms of the deed of trust will not be changed, Africa-Israel will have to pay a price that is 30% higher than the adjusted liability if it wants to make an early repayment. This probably rules out an early repayment.

Africa-Israel's Series 27 bondholders agreed to the company's request, but the Series 26 bondholders rejected it. They had a good reason for rejecting the request to change the terms: under the present terms, they receive from Africa-Israel an annual Consumer Price Index (CPI) linked interest rate of 6.5%, which will gradually rise to 10.75% in 2021. Africa-Israel's ability to meet its future commitments depends on its ability to sell assets on time to meet the bonds' clearance schedule.

The disappointment of Africa-Israel's shareholders at the bondholders' decision is seen in the 6.7% drop in the share price by mid-afternoon. The fall comes after a 35% rally in the share price since the beginning of the month, apparently in expectation that the request to amend the terms of the deed of trust would be approved. Africa-Israel's bonds also fell, and they are now traded at yields of 10%.

The question now is how Africa-Israel chairman Lev Leviev will respond to the bondholders' decision. Under the terms of the company's debt settlement signed in May 2010, Leviev will inject NIS 750 million in several tranches into the company. He has already injected NIS 600 million of this amount). He is due to inject the remaining NIS 150 million as part of a rights issue in May 2014, but some are now questioning his willingness to do so.

The debt settlement states that if Leviev chooses not to convert the rights into shares, his stake in Africa-Israel will be diluted at NIS 36 per share. Since the share price is NIS 7.46, his stake in the company will be diluted by a negligible amount from 47.4% to 46.1%.

Published by Globes [online], Israel business news - www.globes-online.com - on November 21, 2013