Leviev Ponying Up, but Not Enough for Africa's Investors

With Yom Kippur over, Africa Israel should be stepping up debt-rescheduling negotiations with representatives of its groups of bondholders this week.

It seems that Lev Leviev may be putting his hand into his pocket to share with bondholders of his company Africa Israel after all. But he isn't going deep enough to satisfy institutional investors owed money by the cash-strapped real estate empire.

With Yom Kippur over, Africa Israel should be stepping up debt-rescheduling negotiations with representatives of its groups of bondholders this week, following last week's revelations of its plans for creditors, and the resultant explosions. The company had already admitted that it can't meet payments due to bondholders after 2010 and began to lay out guidelines for its proposals. Those feelers from the company led to liquidation threats by outraged bondholders, first and foremost the real estate company's biggest creditor, Psagot.

Unless company owner Lev Leviev ponies up money of his own as part of the arrangement, Psagot threatened, it would sue for Africa Israel's liquidation. Psagot CEO Roy Vermos clarified that many avenues remain to be explored before it sues for liquidation, but the threat is out there.

The general outline that Africa Israel proposes is to repay all the bondholder debt on its balance sheet, NIS 7.4 billion, which is in nominal terms (not including interest and linkage, which lifts the debt beyond NIS 9 billion). But Africa Israel means to allocate any stock under the arrangement according to its face value, rather than market value, which is roughly half.

Beyond cash and issuing a new series of liquid bonds, as well as deferred notes convertible into stock, Africa Israel also proposes to distribute to its bondholders dividends in kind: shares in group companies, but not controlling interests.

At the end of the day, Africa Israel proposes that Lev Leviev remain the controlling shareholder.

Ahead of the start of talks, Africa Israel tried to improve its position somewhat by suggesting, in informal conversations, that Leviev would indeed inject between NIS 200 million to NIS 300 million of his personal wealth into the company, as part of the arrangement, in order to preserve his controlling interest. Some say that's not good enough.

"The company's value after the arrangement should be around NIS 3 billion, and Leviev's [holding] will be diluted to zero," commented a source at Psagot. "If he wants to retain the controlling interest, he'll have to inject a lot more than half a billion shekels."

One achievement last week is that a team was appointed to represent at least most of the bondholders. The team will handle debt negotiations with Africa Israel.

The one exception is B9 series bondholders, who won the battle to be represented separately on the grounds that they have a conflict of interest with other bondholders. The company has already stated that it won't be paying them the NIS 550 million due this November, for fear of causing discrimination between creditors. The B9 bondholders are represented by a team of people from three brokerages: Yelin-Lapidot, Global Finance and Menora-Mivtachim.

Africa Israel has 12 other series of bonds, who will be represented by representatives from five brokerages: Psagot, Migdal Capital Markets, Clal Finance, Harel and Menora-Mivtachim.