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In a show of superlative timing, Africa Israel released an earnings warning for the third quarter of 2007, a day after tapping about a billion shekels from investors. Some outraged institutional investors - though not surprised by the news that the company had incurred heavy financing costs - demanded their money back. After hearing Africa Israel's explanations, though, investors let the company keep 98 percent of the money raised in its biggest-ever bond offering.

In other Africa Israel news, the company is one of 16 contenders that met the preconditions to buy 60 percent of the shares in Philippine National Oil Company-Energy Development Corporation - which among many other things, is considering project development in Iran. The Web site Inquirer.net reports that that the number of companies seeking to buy the controlling interest in PNOC EDC dropped from 24 to 16 since the deadline to submit initial bids, which was October 5.

It's no secret that Lev Leviev, who controls Africa Israel, wants to expand into energy, say equity analysts.

PNOC EDC is traded in the Philippines at a company valuation of $2.4 billion.

The company also produces electricity from wind farms and recently expanded its operations to Bangladesh, Japan, Indonesia, Iran, Peru, Mexico, El Salvador and Papua New Guinea. The company was floated in December 2006, but its controlling interest remained in the hands of the government company Philippine National Oil Co. PNOC EDC, which produces and sells electricity produced from geothermal energy, is the biggest geothermal producer in the Philippines and one of the biggest in the world. Its production capacity is 1,155 megawatts, more than double the production capacity of the Israeli Ormat Industries (which operates chiefly through a New York-listed subsidiary, Ormat Technologies).

PNOC EDC and Ormat are not strangers to one another. Ormat, which is controlled by the Bronicki family, built the Upper Mahiao geothermal power station, with 132MW capacity, for PNOC EDC. That project was a milestone for Ormat: following that project it changed its business model in favor of building power stations as a developer, and selling the electricity it produces through long-term contracts.

Other companies seeking to buy PNOC EDC include Filinvest, American Orient and Ashmore Energy. The remaining 16 contenders have until October 26 to file bids, and the winner will be declared on November 22.

As for Africa Israel, equity analyst Yuval Ben-Zeev of Clal Finance Batucha projects that Africa Israel will be posting financing costs in the range of NIS 150 million to NIS 200 million for the third quarter. Ben-Zeev says his assessment is based on the company's heavy holdings of liabilities linked to the Consumer Price Index (CPI) - NIS 7 billion worth, as of the end of the second quarter of 2007.

In the marketplace, not everybody was taken aback by the company's disappointing third-quarter showing. The fact is that the real estate giant has borrowed heavily, which has its advantages as a business strategy, but also comes at a cost.

"The warning that Africa Israel published today didn't take us by surprise, because like any leveraged company, it, too, would have been hurt by the steep increase in the CPI," said a top source at a major brokerage yesterday. However, another capital market source took umbrage: it is good that Africa Israel shared the information with investors, he said. Not all companies do release earnings warnings when it would be appropriate. But it should have done so before raising more money on the market, not after, he complained.

Consumer prices had risen by 2.5 percent during the third quarter, versus 0.2 percent during the third quarter of 2006 and 0.7 percent in the second quarter. Yesterday Africa Israel warned that because of the steep increase in the third-quarter CPI, its outlay on interest payment would be very high, which would drag down its bottom line.

In the third quarter a year ago, Africa Israel's cost of financing (mainly, interest payments) came to NIS 97 million.

A spokesman for Africa Israel said the announcement about financing costs relates to "open, transparent" information and that the company didn't have to release a warning at all. But, and based on its tradition of absolute transparency, Africa Israel opted to share the information.