Three Years On, Not Everyone Happy With Africa Israel Bailout

Despite a significantly decreased debt load that allows company to proceed with developments, Lev Leviev is chief among those who believe the debt settlement was unfair.

Lev Leviev has now put some NIS 610 million into Africa Israel Investments over the past three years, the latest installment a NIS 104 million contribution to a right offerings completed on Thursday.

That means that Leviev, the property-development company’s controlling shareholder, has come a long way toward meeting his obligation to put NIS 750 million into the company over four years. Over the next 12 months, he has to inject another NIS 140 million into the company.

That NIS 750 million commitment was part of a debt settlement with bondholders when Africa Israel was straining under debt of NIS 8 billion. Today Africa Israel’s debt load is about half that level, which is enabling its management to proceed undisturbed with developing real estate projects in Russia and Eastern Europe.

Nevertheless, the company faces serious challenges. One of them is the double-digit yields of 10.5% that its bonds still trade at. Its shares are close to their record lows, which means Africa Israel has a market capitalization of just NIS 1.4 billion, compared with NIS 28 billion at its peak.

In another two years, Africa managers are hoping they will again be able to collect dividends from its various operating subsidiaries, most particularly AFI Development Russia. That will enable it to services its debt to banks and bondholders.

From the perspective of three years, it appears that the debt settlement was fair, certainly in comparison with others that have been proposed or signed on since then, including those with Yitzhak Tshuva’s Delek Real Estate, Ilan Ben-Dov’s Tao, Yossi Maimon’s Ampal or Nochi Dankner’s IDB Holding Corporation.

Africa Israel’s share price has plunged, but bondholders have nearly all their losses covered. Over the last three years they have had opportunities to sell off the assets they received in the settlement and earn returns equal to the bonds they once held.

Despite this, not everyone is happy with the Africa Israel settlement. Leviev, for example. He has looked around at how the other tycoons succeeded in imposing haircuts on creditors and still retained control of their companies. Few of them were required to put up their personal capital as part of the arrangements.

Leviev has reportedly told associates that he is unhappy with the settlement that Izzy Cohen, CEO of Africa Israel at the time, had negotiated. “I feel a little like a sucker,” he has been quoted as saying.

There is some justice in this. Leviev’s stake in Africa was cut to 47% from 75%. He agreed to turn over NIS 750 million to bank creditors, who had lent money to Memorand Management, the closely held company through which he controls Africa Israel. All told, he will have injected NIS 1.5 billion of his own capital to keep the Africa Israel empire afloat.

Ofer Vaknin