Bricks in the Wall / Cracks and Signs of Strength in a Property Empire

To tell the truth, rumors that Boymelgreen was in trouble have been making the rounds for months. But Monday, the whispers seemed to shift gear.

To tell the truth, rumors that Boymelgreen was in trouble have been making the rounds for months. But yesterday, the whispers seemed to shift gear.

Shaya Boymelgreen had been an unknown quantity in Tel Aviv circles before buying the Azorim construction company for a huge sum. He also bought a shell company that he converted into Boymelgreen Capital. But the behavior of his companies' shares shows that investors sense shoals.

Boymelgreen Capital has dived 32 percent since January 1, while Azorim lost 40 percent in less than a year: NIS 1.4 billion in value vanished. In contrast, the benchmark Real Estate-15 index has gained ground over the last year, despite a recent pullback.

Azorim bonds have lost 7 percent this year and are trading at a yield of 8.6 percent, which is high for a bond that Maalot has rated at A-minus.

Signs of trouble include:

1. Boymelgreen's terrific leverage: His long-term liabilities stood at NIS 3.38 billion at the second quarter's end, plus NIS 2 billion in short-term liabilities. Almost all is owed by Azorim. Boymelgreen owes the capital market NIS 900 million and his shareholder's equity amounts to all of NIS 142 million. That is a vast burden for such small shoulders.

2. Insider deals: Boymelgreen has not shied from loading financing costs of millions onto his companies for his private deal in buying Azorim.

3. Social problems: He has managed to annoy quite a few players. Reports have a private company his family controls charging high management fees from Azorim ($130,000), plus management fees of NIS 2.2 million a year. Rumors of a rift with Africa Israel's Lev Leviev did not help.

4. Opacity: Boymelgreen is first to admit that he is largely unfamiliar with the Israeli capital market. He lives in the U.S. and is not in contact with local institutional investors.

5. Poor results: Boymelgreen's shopping spree, which included Lagna Holdings and Azorim, forced Boymelgreen Capital to borrow enormously. The resulting interest costs are a millstone around its neck. Boymelgreen Capital lost NIS 30 million in the first quarter of 2007, almost entirely due to interest payments on its bonds.

6. Divestment: He's divesting assets here and in New York, including the Assouta site in Tel Aviv. Smells like liquidity trouble.

7. Top executives have been jumping ship.

Signs of strength: For all the doubts, Boymelgreen pulled off all the purchases he targeted, paying NIS 2.5 billion. First-quarter revenues were NIS 277 million, though profit was only NIS 15 million. His exits could be based on value creation. The banks deny that there are problems with his loans, and he is not believed to have exceeded his credit ceiling. `z