Africa Israel Investments, the real-estate company controlled by diamond mogul Lev Leviev, has negotiated a debt-restructuring agreement with representatives of its bondholders, but challenges remain until a final deal is reached.
"The settlement is a first step to secure the survival of the company," Yuval Ben-Zeev, head of research at Clal Finance Brokerage, wrote in a report Sunday. "The reduction and spread of the debt pile over a long period of time will enable the company to focus on its business activities after nearly a year's struggle for survival.
"But the agreement still awaits the final approval of bondholders, in particular by holders of its Series Tet notes, and therefore there is still a risk that it will not be implemented. In addition, the agreement requires approval by the banks, the approval of a bondholders general meeting, and the final debt-restructuring agreements will need to be presented for court approval. Therefore, it is important to remember that the settlement is not final."
On Sunday, the first day of trading following Friday's agreement, Africa Israel's shares on the Tel Aviv Stock Exchange jumped more than 6 percent to NIS 52.50 at the close.
The agreement with bondholders does not include holders of Series Tet bonds, who are owed NIS 550 million when the bonds mature November 10. Separate talks are expected to be conducted this week.
Africa Israel and its bondholders agreed to restructure the terms of repayment for NIS 7.4 billion worth of bonds. Under the deal, Leviev will inject NIS 750m. in cash instead of the NIS 500m. offered originally. As a result, his stake in the company will be reduced to 52.8% from 75%.
"This will be funded through the issue of 6% new Africa Israel Investment shares (NIS 850m.)," Citigroup analyst Marat Ibramigov wrote in a report Sunday. "NIS 4 billion in bonds will be refinanced into two series of bonds (NIS 1b. in two-year bonds and NIS 3b. in three-year bonds).
"In addition, NIS 1.1b. will be exchanged into a 16% stake in Africa Israel unit AFI Development and a 13% stake in Africa Israel Properties...
"Still, our view on the event remains positive, as by settling the debt issue with the bondholders, Africa Israel has effectively reduced the uncertainty over the future of Africa Israel Development and removed the risk of a sell-off of assets at distressed valuations."
NIS 1.8bn of bonds will be converted into a 40% stake of Africa Israel Investments, which will dilute Leviev's stake in the company to 52%. Africa Israel's share in Africa Israel Development will fall to 55.7% as a result of the bond restructuring.
Even after the settlement, Africa Israel would still be a heavily leveraged company, with NIS 4.5b. in net debt, Ben-Zeev said.