Hapoalim Asks Lev Leviev for Massive Increase in Collateral

Mamorand, the private holding company through which Leviev owns his 47% controlling stake in Africa-Israel Investments, has estimated NIS 1.5 billion in outstanding debt to Israel's five banks.

Bank Hapoalim is asking businessman Lev Leviev to pony up as much as NIS 600 million by the end of this month to cover an acute shortfall in security on his loans. The bank may be forced to post heavy provisions for credit losses (previously called provisions for doubtful loans) if a significant dose of additional security isn't provided.

Mamorand, the private holding company through which Leviev owns his 47% controlling stake in Africa-Israel Investments, has an estimated NIS 1.5 billion in outstanding debt to Israel's five banks. Of this, about half is owed to Hapoalim, while Bank Leumi is the second-biggest creditor.

Lev Leviev - David Bachar
David Bachar

But security for the loans, mostly in the form of Leviev's Africa-Israel shares, became woefully inadequate after the stock plummeted 46% in the third quarter and reduced the company's market value by NIS 1.17 billion. The decline reflected falling markets worldwide, but was worsened by the company's exposure to Europe, and especially to Russia's real estate market.

Two years ago, Leviev pumped hundreds of millions of shekels into reducing his debt to the banks. He also bolstered security on the remaining debts with liens on his holdings in LLC Lukas Zolotoy and Zolotoy Kolosok, two companies dealing in gold, as well as on his rights in leased warehouses valued at $50 million, on land rights in Russia worth $15 million, and on other real estate holdings and diamond companies.

But the Bank of Israel no longer allows banks to count assets in Russia as security for doubtful loans, apparently due to its high level of country risk. The huge resulting difference between Leviev's outstanding loan balance and the value of his recognized collateral spurred Hapoalim to start talks with him on closing the gap.

In the second quarter, Hapoalim's provision for credit losses totaled NIS 327 million, 0.55% of its loan portfolio. According to capital market estimates, a large portion of the provision was attributable to the estimated NIS 1 billion in private debt owed by Moti Zisser.

So far, Leviev is thought to have made all his scheduled payments to the banks on time, so he wouldn't necessarily be required to comply with Hapoalim's request for additional cash and security. If he does acquiesce, however, the other banks would expect to be given additional security as well in accordance with their share of the overall debt, as stipulated in the original agreements between the parties.

"Leviev isn't obligated, but it's safe to assume he's taking his long-standing relationship with the banks into consideration," said a source close to both sides. "Therefore, it seems he'll fulfill their request, at least in part."

The Leviev group refused to comment on the matter.