Leviev Freed From a Bitter Yoke: Debt and Value Destruction

And so it came to pass that Lev Leviev, the man behind the Africa Israel empire, sold his holdings in the Ramat Aviv mall. In need of liquidity to survive his slog through the credit desert, Leviev let go of the flagship north Tel Aviv shopping center. After almost a year of negotiations with various potential buyers, the deal selling it to Yuli and Eyal Ofer, owners of the real estate company Melisron, is all but done.

At least, a memorandum of understanding has been signed, pricing the mall at NIS 1.53 billion. "I called Yossi [Perry, Melisron CEO] to congratulate him and wish him the best of luck. They bought the best mall in Israel," said Moshe Rosenblum, leader of British Israel's malls division. British Israel had also been in the running for Ramat Aviv, he said, but decided to bow out because it was "too perfect" - the group couldn't "better" it, meaning, make improvements and sell it onward for a profit.

Rosenblum adds that the rental prices that businesses at the mall pay are sky-high, and he doubts that the return on investment can be seriously improved. Possibly returns on the mall could be bettered by opening it on Shabbat, but at this stage, says the mall's management, there's no such plan in the works.

Leviev is far from being the only businessman making moves to ease liquidity, whether in order to pay back bondholders, banks and other creditors or to improve financial ratios. These are hard times, the global economy is contracting hard and jittery banks are clenching their fists. If once, companies - including some decidedly iffy ones - could routinely take out fresh loans to repay old ones, that isn't the case any more.

The sale of the Ramat Aviv mall, and a previous sale earlier this year of the Savyonim mall, covers about 40% of the debt that parent company Africa Israel Investments has to pay in the next 12 months. Technically the mall was owned by company arm Africa Israel Properties: The income from the selloff covers almost all that division's bond repayments this year.

Actually, Africa Israel Properties won't be posting any profit on the sale. What it gets is cash flow, of NIS 800 million in net terms. It (with its subsidiaries) has to repay NIS 756 million to banks and bondholders in the next 12 months. The sale solves that problem.

Ramat Aviv has been considered one of the best malls in Israel. But for real estate holding companies, there aren't many choices beyond selling assets. Manufacturers can shut down production lines and fire staff, technology companies can scale back research. Workers in advanced jobs, from technicians to scientists, suddenly find themselves out in the street. Africa Israel can't do that.

Market investors had been worried about Africa Israel's ability to meet its liabilities in full, as the market value of the company's properties - most notably in the United States and Russia - imploded. Their mounting concern was reflected in the company's bonds, which began to trade at junk-yield levels last year. Following announcement of the mall sale last year, the price of Africa Israel bonds soared by 5.6% to 14.3% on the Tel Aviv Stock Exchange (the company has more than one series of bonds listed for trading), on heavy turnover.

By the way, Africa Israel Investments has to repay NIS 1.8 billion in the next 12 months.

And how will Melisron pay for the mall in these credit-tight times? It will be borrowing from bondholders. The company means to issue NIS 870 million worth of bonds, backed by its holding in the Renanim mall in Ra'anana.