$47.6M at Risk in Israel as Urbancorp Bonds Plunge Amid Doubts by Investors

Yields soar on TASE-traded debt as Toronto property developer loses lawyers, key director.

The Tel Aviv Stock Exchange.
Moti Milrod

Urbancorp, one of 15 foreign real estate companies with bonds trading on the Tel Aviv Stock Exchange, was struggling with multiple crises Monday, jeopardizing some 180 million shekels ($47.6 million) in bonds held by Israeli investors.

Trading in the Toronto property developer’s bonds was suspended on Sunday before Urbancorp’s local attorneys took the unusual step of severing its contract with the company Monday. James Somerville said he was quitting the board of directors, just two weeks after he had been appointed to provide expertise in accounting.

Urbancorp’s bonds, which were issued only last December with a coupon of 8.15%, plunged Monday to 45 agorot, boosting their yield to a junk-bond level of 53%.

One of Toronto’s biggest property companies, Urbancorp is one of 15 North American property companies in the last two years to issue a combined 10 billion shekels in debt on the TASE.

Although the 8.15% coupon on Urbancorp’s bond signaled the risk of holding the debt, the bond attracted many of Israel’s leading institutional investors, including Psagot, Ayalon, Analyst, Migdal and Meitav Dash as well as private and small investors.

On Sunday, Urbancorp said in a lengthy announcement that its attorneys, Shimonov & Company, were severing their relationship with the company — a move the market saw as signaling a crisis of confidence in the firm.

Urbancorp has yet to release its 2015 financial report after its audit committee voted to delay it due to “open issues and questions,” including a valuation of a geothermal-heating project it controls. But the most critical issue facing the company is a C$12 million ($9.2 million) capital injection, Urbancorp’s controlling shareholder Alan Sakin had committed to when the company issued its prospectus last November head of the bond sale.

However, at the end of March it emerged that Sakin had taken out a loan from a non-bank financial group with considerable restrictions attached to it to make good on his commitment. The restrictions were not reported to Israel investors in a timely way and it is not yet clear whether the capital fulfils Saskin’s commitment.

Tarion said it had concerns about Urbancorp’s financial health and the numbers of claims from buyers being made against the company.

Claims have been filed against Urbancorp over delayed projects, deposit refunds and new homes in which the builder didn’t fulfil the contract with the homeowner.

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This article was amended on August 13, 2016, to remove an inaccuracy from the original report, which misrepresented a warning from Tarion Warranty Corporation.

Tarion, which provides a warranty on new homes from registered builders, warned Urbancorp that it could lose its registration with Ontario's new-home warranty insurer unless it improved its record with home buyers. However, if a buyer has purchased a home from Urbancorp, the warranty remains intact, including deposit insurance, delay compensation and warranties for construction deficiencies.