Israeli Real Estate Developer Seeks to Settle Debt With Bondholders

Its Russia-focused subsidiary hurt by the weak Russian economy, Africa Israel Investments has to repay over $800m in Israeli bonds.

Lev Leviev, the controlling shareholder of Africa Israel.
Moti Kimchi

Lev Leviev went back to his creditors for the second time in six years late on Tuesday, opening talks about a debt bailout for his financially troubled real-estate development company Africa Israel Investments.

Talks began with holders of the company’s kaf-vav, kaf-zion and kaf-het bonds, who are owed a combined 3.6 billion shekels ($940 million). Africa Israel negotiated a much bigger 8-billion-shekel accord with creditors in 2010, but the company’s Russian real-estate portfolio, which is the source of its problems, remains troubles by a depressed economy.

Africa Israel shares plummeted on Tel Aviv Stock Exchange trading yesterday, falling 20.9% to end at 1.27 shekels and leaving its market capitalization at just 261 million shekels. 

“In light of recent events, the company’s rating is expected to be lowered significantly in the short term,” said the credit rating agency Midroog, which now rates the bonds Ba3.

“The deep crisis that has taken hold of the Russian economy in the last two years and has worsened in recent months has made the situation in the Russian real-estate market even worse, and naturally that has affected the real estate of AFI Development,” Africa Israel CEO Avraham Novogrocki said.

The Russian economy has been battered by Western sanctions that were imposed after Russia aided rebels in Ukraine as well as by the sharp drop in world oil prices and the plummeting value of the ruble.  

Africa Israel said its Russia-focused AFI Development subsidiary had seen the value of its assets continue to decline by the “hundreds of millions of dollars,” as have revenues and profits. Meanwhile, the Russian bank VTB has called for early repayment of a $611- million loan to AFI Development for projects including the AFI Mall in Moscow, Africa Israel said.

It added that the parties are examining the possibility of the loan being paid off with the bank taking possession of a number of substantial assets. A deal like that, it said, would enable AFI Development to reduce its debt by as much as $266 million, depending  on how the deal is structured.

“We realize that the crisis is not passing and continues to present complex challenges for us and all international companies operating in the country,” Novogrocki said. “As we try to cope with these challenges in the Russian market, we have decided for a second time on a reorganization program for Africa Israel’s liabilities. The situation left us no choice and is the only way the company can meet it obligations to its bondholders.”

After the global financial crisis of 2008, Africa Israel was hurt by the real-estate meltdown in the United States, Russia and eastern Europe. It defaulted on a series of bonds and in 2010 it restructured 7.4 billion shekels of debt.

Africa Israel noted that in the wake of its previous debt restructuring it sold off assets worth 6.7 billion shekels and repaid 4.8 billion shekels of debt.

In the fourth quarter of 2015 Africa Israel had a net loss of 1.58 billion shekels after AFI, which is 65% held by Africa Israel, posted a decline in the value of its assets of 1.96 billion shekels. AFI had a loss of $490 million in the quarter. Africa Israel said in March it planned to sell some assets to generate positive cash flow to help it pay off its debts