Industrial Buildings to Tap Market for NIS 100 Million

Eliezer Fishman's Jerusalem Economic Corporation has NIS 1.2 billion in bank and bondholder debt due by March 31, 2010. Its subsidiary Industrial Building Corporation has to repay NIS 1.19 billion during the same period.

It's no wonder then that Fishman is in a hurry to take advantage of the current window of opportunity to raise funds to refinance his companies' liabilities.

In the coming week, the veteran real estate tycoon will try to raise at least NIS 100 million by expanding Industrial Buildings' series B7 bond issue. He can raise up to NIS 300 million by extending the company's B7 and B12 bonds, based on Midroog's A2 rating of the bonds. The bond issue will be led by Clal Underwriting, Analyst Underwriting and Leumi Partners Underwriting.

The series B7 bonds are linked to the consumer price index and have an average duration of 1.6 years. The bonds carry 5.5% interest and the principal will be repaid in four equal installments every August, from 2009 through 2012. The interest is paid twice a year, in February and August. The minimum price for the tender has not yet been published.

This bond series is unsecured. Fishman is offering institutional investors warrants on the B7 bonds, at no extra charge, for exercise within three months. Investors can receive 50 warrants for every NIS 100 of face value on the bonds, and each warrant can be exchanged for NIS 100 in face value of bonds. The exercise price has not yet been set.

Industrial Buildings' series B7 bonds are currently trading at a yield of 5.53%. The rest of Fishman's bonds are trading at yields between 3.7%, for series B6, with an average duration of 1.7 years, and 11.6% for the other series, with an average duration of up to 8.5 years. Jerusalem Economic's bonds are in much worse shape, trading at double digit yields of 18%-26%, which indicates that investors fear Fishman will not be able to meet his liabilities.

"The need to support these companies and the lack of cash flow from these investments in the near future will likely be reflected in the companies' coverage ratios," write analysts at the credit rating company Midroog. They also cite the economic slump in Russia and India, which host most of these companies' operations.

On a more positive note, the analysts write that Industrial Buildings has good financial flexibility, as evinced by its liquidity, as well as NIS 1.8 billion in unattached assets in Israel and substantial deposits. These deposits are earmarked for repaying some of the principal on the bonds which are due for redemption in the next two years.

Fishman, one of the biggest borrowers from both the Israeli banking system and the capital market, a few months ago proposed a sweeping debt rescheduling arrangement. The plan was lambasted, with the institutionals claiming Fishman was trying to change the rules of the game and that if his plan were implemented, it would cause the capital market long-term damage.

Jerusalem Economic plans to repay its debts with cash from current operations and the sale of about NIS 270 million in assets in Israel and abroad; maximizing its lines of credit at Israeli banks; borrowing NIS 200 million here and abroad; rescheduling the repayment of NIS 400 million in loans; selling about NIS 60 million in negotiable securities and withdrawing NIS 7 million as a dividend from Industrial Buildings.

Last April Midroog downgraded Jerusalem Economic's bonds one rank, from A1 to A2, with a negative outlook, and Industrial Buildings' bonds by two rungs, from Aa3 to A2, with a stable outlook.

Midroog's analysts explained the downgrade was based on "significantly diminished strength and equity ratios in the companies' balance sheets"; the shrunken value of another Fishman company, MirLand Developments, which operates in the Russian real estate market; and the slumping activity of other group companies.