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The Bank of Israel is giving Africa Israel Group bondholders good cause for worry: it's refusing to approve Africa Israel Properties' sale of the Ramat Aviv and Savyonim malls to Melisron.

Melisron is a real estate company controlled by the Ofer family. The central bank's concern is based on the Ofer family's holdings in Bank Mizrahi-Tefahot.

The Ofer family owns Melisron via Ofer Brothers Properties, which is owned by Yuli Ofer and his children, Liora and Doron (67%) and Eyal Ofer (33%), Yuli's nephew. Ofer Properties also owns 19.87% of Mizrahi-Tefahot, and shares the controlling stake in the bank.

This delay is bad news for Lev Leviev's Africa Israel, which was hoping to use the funds from the sale of its holdings in the malls (100% of Savyonim and 74% of Ramat Aviv) to refill its coffers and meet upcoming financial obligations.

A significant delay in the completion of the sale of the malls to Melisron could result in Africa Israel being unable to meet the NIS 600 million principal and interest payment due bondholders in the short term.

The sale of the two shopping centers is expected to generate about NIS 400 million in cash for Africa Israel, which owes an additional NIS 200-NIS 250 million to banks and bondholders by the end of this year.

As of April 1, 2009, Africa Israel had just NIS 72 million in its coffers.

The Supervisor of Banks at the Bank of Israel has been worried for a few years over the structure of the Ofer family's holdings in Mizrahi-Tefahot. Among other things, the central bank is concerned by the fact that the holding company has both real estate and banking assets.

Melisron's purchase of the malls would increase Ofer Brothers Properties' exposure to real estate, an industry characterized by high leverage and commensurately high risk.

The central bank asked the Ofer family years ago to separate its real estate dealings from its bank holdings. The Ofer family has begun a procedural process aimed at separating the real estate activities from the banking activities, and forming two separate companies. The process will take time, however, as it requires the agreement of all the Ofer family members, the resolution of tax issues, regulatory permits, and more.

A source close to Ofer Properties said Sunday that the mall deal could go through even before the completion of the separation of the real estate and banking activities, and that the company is examining various options.

A source close to Africa Israel was under the impression Sunday that the splitting of the Ofer family's real estate and banking dealings could be undertaken within days, and added that the Supervisor of Banks was expected to approve that process by the end of next month, thus facilitating the completion of the sale of the malls on schedule.

"The deal is continuing in its planned format and on schedule, without any problems," said a spokesperson for Ofer Properties.

Like many other business owners, the Ofer family has been hurt by the global economic crisis. In the past year the value of the Israel Corporation, controlled by Sammy and Idan Ofer, has shrunk by 51%, and is currently trading at a market cap of about NIS 16 billion. Israel Corporation subsidiaries Israel Chemicals and Oil Refineries have lost 28% and 48% of their value, respectively, and Zim Integrated Shipping Services has also been hit hard by the crisis in the shipping industry.

Ofer Properties has been hurt by the 20% decline in the value of Mizrahi-Tefahot over the past year, but Melisron, the mall management company, has actually remained stable.

The Bank of Israel declined comment.