It’s hard to believe, but the Israeli government is joining the wave of debt arrangements by companies that have issued bonds to the public.Agrexco, which is controlled by the state, is proposing a 35 percent “haircut” to its bondholders, people familiar with the matter told Globes.This week, Globes revealed that Agrexco intended to turn to a debt arrangement because of heavy losses it incurred last year and a going concern warning that its auditors appended to its financial statements.The agricultural export company owes 32 million euros to institutions to which it issued bonds in 2007. It is now proposing to them to convert 35% of the debt to 10% of its equity and the rest to reschedule over a long period. In return, the state will inject capital into the company and make a partial payment in cash.Agrexco had revenue of some 490 million euros in 2010, but posted a net loss of 33 million euros. The company attributed the losses to a loss of market share in Europe, the weakness of the euro and climatic events in Israel.Agrexco has a deficit of 13 million euros on shareholders’ equity and 49 million euros of working capital deficit. It financial liabilities stand at 83 million euros, and it has failed to meet financial covenants in its bond-trust deed.Apart from the debt to bondholders, Agrexco has debts to banks and suppliers in Israel and a large debt to a French bank.Globes has learned that the company owes about 60 million euros to the Ofer family, under a deal to lease two refrigeration vessels from Ofer Shipping. The ships were designed, ordered and built by and for Agrexco with finance from a German bank with no connection to Ofer Shipping.After two years of operating the ships, the company approached Ofer Shipping with a request that Ofer should buy the ships and operate them for it, as it was dissatisfied with the way the ships had been operated by a foreign company.Ofer Shipping came to Agrexco’s aid and bought the ships, leasing them to Agrexco for 14 years, which will end in December 2019. The money paid by Agrexco to Ofer Shipping mostly serves to repay the loan from the German bank, with the rest covering operating expenses.When Agrexco was founded in 1953 it received a government monopoly on the export of fresh agricultural produce, apart from citrus fruits, and its success was assured. However, over the years, agricultural exports have been opened to competition, and now Agrexco accounts for only 50%.The state plans to privatize the company. At the end of 2010, it injected NIS 55 million into Agrexco, after the company failed to meet shareholders’ equity conditions.