Future still cloudy for Financial Levers
The company's main assets, besides its properties in Kazakhstan, include the Arena Mall in Herzliya, the Star Center in Ashdod, and a mall in Nahariya under construction which hasn't yet yielded any income.
Financial Levers' major shareholders have granted the company a reprieve which should save it for now from sinking into a financial abyss.
Owners Markus Webber, through his Singapore-based investment company ASTC, and Avraham Nanikashvili are putting up $15 million in loans - $10 million and $5 million, respectively, according to their relative shareholdings - to help cover a NIS 48.5-million payment by Financial Levers due to bondholders at the end of this month, the company announced late last week. Nanikashvili will extend an additional no-interest $1 million loan to cover the company's operating expenses. ASTC owns 49% of the company and Nanikashvili owns 24%.
The real-estate development company owes its bondholders a total NIS 157 million, mostly for the B1 series on which one-third of the principal plus 3.38% in interest contribute to the NIS 48.5 million payable May 31. The company's other series, C2, consists of convertible bonds.
A bondholders' meeting was scheduled this morning to address the company's declaration that it lacks the funds needed to redeem its bond debt, plus the fact that its securities can't be traded on the market: Financial Levers' trading on the Tel Aviv Stock Exchange was suspended at the end of April because it failed to submit its annual 2011 financial statements. At the same time the stock was removed from the benchmark TA-100 index.
Series B1 bonds have been frozen at 112.8 agorot, reflecting an annual 14% yield, but it is doubtful this price includes all the current risk: particularly considering the series' short duration. In the first four months of the year the shares dropped 31% and are now stuck at 26.3 agorot.
The release of 2011 financial statements was delayed by the intervention of the Israel Securities Authority, which objected to valuation of the company's property holdings in Kazakhstan, which are among its major assets. These first appeared in the 2010 statements at $46 million.
The meeting, called at the end of April, was also meant to deal with uncertainty regarding financial developments in the company since it last drew up statements - for the end of September. At that time its liquid assets stood at about NIS 48 million against NIS 131.5 million in current liabilities due by September 2012 to bondholders, banks and other lending institutions. The company's total liabilities amounted to NIS 302 million, including about half that amount for its bonds.
Investors have no idea how much cash the company's operations have generated since last September, and only know it admitted not having the resources to make its NIS 48.5-million payment at the end of the month - save for the loans now taken from the owners.
The main assets of Financial Levers, besides its properties in Kazakhstan, include the Arena Mall in Herzliya, the Star Center in Ashdod, and a mall in Nahariya under construction which hasn't yet yielded any income.
In December the company received a $15-million, 5% loan from a foreign bank to repay an old loan from 2006. Financial Levers backed the new loan with shares in its subsidiary MacPell Industries, through which it owns the Kazakhstan properties.
At the ISA's insistence, Financial Levers published partial estimates of its financial position at the beginning of April. These revealed that the company expects to register a NIS 215-million loss for 2011, compared with a NIS 18-million loss posted in 2010, and that its capital equity is expected to have shrunk by 30% to NIS 492 million. This is without taking into account losses due to adopting ISA recommendations on valuing the land in Kazakhstan.
According to Financial Levers, its 2011 losses can be chalked up to adjusting investment properties to their fair value, particularly Herzliya's Arena Mall and the land in Kazakhstan, totaling NIS 89 million; NIS 26 million in deferred tax expenses due to legislated changes; and a NIS 113-million share of losses by a jointly owned Texas-based affiliate that missed a payment on the mortgage of a Dallas office building that was consequently repossessed.
Ben Zaken's lucky break
In November 2010 part-owner Jacky Ben Zaken offered NIS 712 million for a combined 69% stake in Financial Levers, held by Webber and Nanikashvili, reflecting a NIS 1.10 share value for the company. Ben Zaken even agreed to take on the obligation of providing the company with a $15 million owner's loan.
What finally transpired last August was that Webber and Nanikashvili turned the tables, acquiring Ben Zaken's 11.5% stake for NIS 97 million at a mere NIS 0.80 per share value. But it appears Ben Zaken has the last laugh: The shares he sold have since lost two-thirds their value.
Today bondholders are demanding explanations. The loans from the owners will cover their upcoming payment, but if the company doesn't recover quickly its future will remain uncertain.