As a humbled Lev Leviev scrambles to reach a debt arrangement with his Africa Israel Investments' creditors, analysts scurried yesterday to downgrade the company's stock and the political echelon declared that if the tycoon's ship is springing leaks, they won't be there to bung up the holes.
Africa Israel has the wherewithal to meet debt repayments this year and in 2010. The question is the long run. Unless the sprawling real estate empire reschedules its repayments, and barring a bouncy rebound of the global real estate market, it could find itself in default down the line.
Asked if he wanted to apologize to investors ahead of Yom Kippur, the Jewish day of atonement, Leviev - a deeply religious man - said that he asks for forgiveness each and every day.
"One must always be modest and good," said the business baron, who owns property in Israel, the United States, Europe, Russia and points between. "I have not stolen. I have not cheated. A great many people made a lot of money from Africa. If we manage to weather this crisis, we will laugh all the way." To the bank, presumably.
Africa Israel has to pay its bondholders NIS 1.47 billion in the next 12 months, plus NIS 329 million to banks and others. It lost about NIS 1.3 billion in the second quarter of 2009, which isn't helping.
It appears that Bank Hapoalim is the most heavily exposed of Israel's banks to Leviev's business empire. His companies, including his privately-held investments vehicle Memorand, owe Hapoalim NIS 1.5 billion-NIS 2 billion, say sources in the banking industry. Hapoalim holds rights to 46% of Africa Israel's share capital as collateral backing these loans.
Leviev personally owns 78% of Africa Israel's stock, but Israeli banks have rights to all of it. Bank Leumi is believed to be owed NIS 400 million to half a billion shekels by various Leviev vehicles. Bank Hapoalim says it won't comment on specific clients.
The Bank of Israel for one is unconcerned, at least about the stability of Israel's banks. Whatever happens with Africa Israel, it won't destabilize any of the local banks, said a central bank source yesterday. The reassurance is a repeat from early 2009, when the Bank of Israel stated that even in the scenario of the country's major tycoons going under, the banks would stand strong.
Africa Israel has sold more than NIS 4 billion worth of assets to regain liquidity, Leviev said at a press conference he convened yesterday, at which he asserted the group continues to manage its worldwide business responsibly. But even if the worst comes to pass, one place he and his group won't find support is the state.
"There will be no state intervention in the affairs of Lev Leviev or Africa Israel. The state won't help them," said a source at the prime minister's office yesterday, following Leviev's morning press conference, at which he admitted that meeting debt repayments might be a problem.
Africa Israel's problems aren't of a macroeconomic magnitude, suggested the PMO official. "I assume that the problem will be ironed out between Leviev and the institutional investors. Nobody in Africa Israel thinks that the state should help, and none has been asked for," he added. "In the past we said we wouldn't help tycoons, and we won't."
The source noted that Africa Israel didn't say it wouldn't pay: It's just working out new payment arrangements, the source said. "I assume it will work out."
Though the Africa Israel group has been selling assets for months in order to gain liquidity, Africa Israel Hotels isn't for sale, stated that subsidiary's CEO Yakov Sudry. At least, it isn't for now, he added.
Of course if somebody makes a terrific offer, it will be considered, he said.
Africa Israel does not actually consider hotels to be core to its business. But offers to buy the chain have been too low to interest the group, generally not even rising to the level of Africa Israel Hotels' market capitalization on the Tel Aviv Stock Exchange. Africa Israel Hotels has 11 properties, branded Crowne Plaza and Holiday-Inn.
A source in the hotels industry advised that Leviev will have to lower its sights if he wants to sell the chain.
Analysts lost little time responding to Africa Israel's little bombshells.
"We've been stressing the risk at the company for a long time, but unquestionably this is a shock to the capital market," said Clal Finance analyst Yuval Ben-Zeev, after Africa Israel admitted to losing NIS 1.3 billion in the second quarter. Ben-Zeev urged investors to sell Africa Israel stock. His 12-month price target is NIS 35. Africa Israel shares opened at NIS 60 yesterday.
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