Africa Israel heads 'shocked' by public reaction to travails

Africa Israel yesterday submitted for the court's approval the debt arrangement its chiefs reached with the company's bondholders. In its motion to the Tel Aviv District Court the company wrote that while a public response had been expected, "the dimensions and intensity of the storm that raged after the company's announcement could not have been anticipated."

Two months ago Africa Israel admitted that it couldn't meet its liabilities after the year 2010. It owes bondholders NIS 7.5 billion and banks another half-billion shekels. After intense haggling between representatives of most of the bondholders (excluding holders of B9 series bonds) and the company chiefs, an accord has been hammered out that requires the court's imprimatur before it can be executed.

"The public debate was taken over by voices that seem to have pounced on the opportunity to taunt the company and its controlling shareholder [Lev Leviev], to lash at the company while conducting a systematic campaign of fiery criticism," wrote Africa Israel's lawyers in their paper to court, which evidently reflects the mind-set of Leviev and the Africa Israel management.

Africa Israel is expected to hold assemblies for each of its 13 series of bondholders within the next three weeks, to obtain their formal votes in favor of the arrangement.

The company goes on to allege that "some people" had said that liquidating Africa Israel was a "national mission."

"At certain moments it seemed as though there was a public campaign, run by a central media source, to make clear to the public that from the moment the company realized it couldn't meet its debts to creditors on time it should immediately be handed over to creditors whether by way of liquidation or some other way," Africa Israel wrote.

Throughout the 122-page motion Africa Israel relates to the 13 series of bonds as though all should be encompassed in a single arrangement, although there are conflicts of interest. For instance, the holders of the B9 bonds were supposed to get paid NIS 550 million this morning, which apparently isn't going to happen. These bondholders, who rejected joint representation with the holders of other Africa Israel bonds, will be meeting later today to discuss their next steps.

Africa Israel sources had denied any intention of seeking protection from creditors, to protect itself from the B9 holders, which could theoretically demand the company's liquidation. But the company clarified yesterday that if necessary, it will indeed seek such protection until its arrangement is approved.

In what may be unintentional irony, Africa Israel wrote in its motion that one advantage of the proposed arrangement is that the management backbone remains intact, including the "added value the company receives, and consequently so do its investors, from Leviev's personal contacts."

Part of the arrangement involves Africa Israel refraining from paying dividends to shareholders from future profits, if it causes the company to violate its financial covenants. In any case, Africa Israel can't pay any dividends for two years. Nor may Africa Israel pay dividends if Leviev reneges on his undertakings to inject NIS 200 million into the company over two years (on top of NIS 300 million through a rights issue). Africa Israel may not assign any of its assets as collateral without the permission of its bondholders. While Leviev may sell shares in Africa Israel if he chooses, he can't lower his stake below 45% until he has paid NIS 200 million into the company.