Sybil group plans to build mega-casino in Germany

It's not every day that the controlling shareholder of an Israeli real estate company meets with the finance minister of a German state, but Pinhas Sarfati of Sybil Germany had that very honor last month. Sarfati met with Saxony-Anhalt Finance Minister Jens Bullerjahn for more than two hours to discuss his firm's acquisition of a state concession to operate a casino there.

Saxony-Anhalt is a relatively small, rural state with many casinos. The announcement Safari sent to Israel last month was laconic, stating simply that he had been awarded the concession in exchange for 1 million euro. It turns out, however, that this is a particularly large project that could rival the casinos in Las Vegas in opulence.

In addition to the casino the plan includes a commercial center, restaurants, four 5-star hotels with 1,500 rooms, a conference center and even a riverside marina. German media sources estimate the cost of the project at 300 million euro to 500 million euro.

Sybil Germany is a subsidiary of Sybil Europe. Sarfati is the founder and controlling shareholder of both companies. His planned investment in Germany is very high when compared to the parent company's cash flow from current activities in the first nine months of 2009, which totaled 620 million euro.

Even more intriguing is the fact that a few months ago Sarfati's main concern was the repayment of debts. Together, the two Sybils owe bondholders NIS 200 million on two bond series that are trading at yields of 30%-40%, indicating serious investor fears that the companies will not repay their money. These two companies have bank debts totaling NIS 800 million, according to the financial reports for the first nine months of 2009.

The casino project would be a major undertaking for any company, and is especially so for Sybil, whose most expensive property thus far is the Maximus Center in Poland, which is valued at 120 million euro.

There were questions in the German press about how Sybil will raise the necessary financing and whether it's up to such a big project.

"We have met all our obligations so far," Sarfati told TheMarker. "We have paid off the principal and the interest on time, even though in the past year we have been approached by brokers and advisers who offered us their services to reach a debt arrangement."

Isn't this project big for you?

"Not at all. Sybil has always been able to handle big projects. The American investment bank Miller Buckfire is our financier. The bank's CEO, John Orem, is handling things for us. Orem has arranged billions for Sheldon Adelson. Orem made some inquiries for us, and we have already been contacted by four or five international investors who are interested in our project."

How does a company whose bonds are trading at yields of almost 40% take on a project like this?

"All the capital for this project will come from outside. The subsidy we will receive from the German government will be part of our equity, as will funds from partners we will bring in."

Will you raise money via a bond issue?

"Raising money via bonds is not at the top of our agenda. There will probably be an international bond issue at the end... the project will advance in keeping with our progress in raising capital."

What interest will you offer?

"The interest Jens [Bullerjahn] mentioned is an effective rate of 10%.

Last year you recycled a loan at 23% interest.

"When I recycled that loan at 23% last summer we were in negotiations with a bank that demanded 35% interest. We lowered this by 12%. There is no bank in Europe right now that will not speak to us."

Even so, how will you cope with the yield on your bonds in Israel?

"Yields of 37% will make it difficult for me raise funds here in Israel, but that is as a company. When I try to raise capital for a particular property, like this project, it's a different story."

Why don't you buy back your bonds at the current prices?

"Our bonds are on the decline. The market analysts do not learn enough about companies. Anyone who bought our bonds made a lot of money."

You are a real estate company. What do you know about casinos?

"We have hired people who understand this field in Europe. We have also brought in the former Queenco CEO Dror Mizeretz.

Will you end up with a minority holding in the project?

"We won't mind having a minority holding in a project worth 2 billion euro."

Sybil issued NIS 100 million worth of bonds in Israel and their yields soared to 194% in 2008. Sartfati sold a property in Weisswasser, Germany, at a loss of ?2 million and took high-interest loans to repay bondholders. Sybil recorded 10.6 million euro in revenues for the first nine months of 2009, down from 11.6 million euro in the parallel in 2008, and had net losses of 2.9 million euro compared to 8.8 million euro in profits in the first nine months of 2008.