Africa Israel Deal Close as Bondholders Accept Offer

  • Written by  Michael Rochvarger and Shelly Appelberg

After 18 months of negotiations between Africa Israel Investment bondholders and Moti Ben-Moshe, a deal to acquire control of the company’s African Properties unit is being wrapped up – with Ben-Moshe pushed out by a pair of last-minute bidders.

On Thursday, more than 90% of holders of Africa Israel’s Kaf-Vav and Kaf-Zion bonds agreed to accept an offer from a group led by the property companies Mega Or and Big Shopping Centers to buy the unit’s shares for 86 shekels ($23.81) each, or a total of 1.25 billion shekels. The group also includes a handful of hedge funds and institutional investors.

The deal still has to be approved by Tel Aviv District Court Judge Eitan Orenstein, who is overseeing the debt bailout of Africa Israel group, which was controlled by tycoon Lev Leviev for 22 years before he ceded control rather than inject new capital into his company saddled with 3 billion shekels in debt.

If Orenstein approves the deal, as expected, the group will take control of Africa Israel’s biggest subsidiary, Africa Properties, which develops and operates industrial commercial office and residential properties and has a market capitalization of 2.45 billion shekels.

On Sunday, Africa Properties shares ended down 1% in Tel Aviv Stock Exchange trading at 94.83 shekels.

Mega Or and Big deal in a segment of the real estate market regarded as relatively high-risk: Rather than buying existing properties with an existing cash flow from rent, they develop greenfield projects that are more speculative.

Both companies are regarded as conservative players in a high-risk business, but have enjoyed spectacular growth in recent years.

Mega Or, which was founded 17 years ago by Tzahi Nahmias, 48, and went public on the TASE in 2007, specializes in developing, commercial centers, logistic centers and industrial buildings. It controls 37 properties with 405,000 square meters of floor space. Over the last five years, its market cap quadrupled to 1.34 billion shekels.

Big, which specializes in building and managing shopping centers, is 63% controlled by Yehuda and Ronny Naftali, Israeli brothers who have spent many years in the United States. Under the leadership of CEO Eitan Bar Zeev, Big has expanded substantially since entering the U.S. market in the last five years.

Big’s assets were worth 9.4 billion shekels ($2.6 billion) as of September 2018, nearly double the level five years earlier. Shareholders’ equity has nearly doubled as well to 3.3 billion shekels.

Other investors in the group include the hedge fund Klirmark Capital, which organized the group, Noked Capital, insurers Phoenix, Clal and Harel and the investment houses Meitav Dash, Psagot and Mor.

Although Mega Or and Big have long worked together through a private joint venture, the group has no control agreement between them, which means they are free to act as they choose. That leaves Africa Properties without a controlling shareholder.

The financial investors, who can already chalk up a profit on the deal since they bought Africa shares at a discount to their market price, may opt to exit.

The group agreed to buy Africa Properties without extensive due diligence, as is usually the case in complicated and costly deals like this. But in line with their conservative outlook, they judged the downside risk as minimal.

The deal values Africa Properties at 2.45 billion shekels, 1 billion less than its shareholders equity. Thus, even if they end up writing down the value of some of its assets by several hundred million shekels, as is likely the case for its European properties, they are confident that the acquisition will still be profitable, sources said.

Mega Or’s Nahamias and Big’s Naftali brothers are said to have considerable confidence in Africa Properties CEO, Avi Barzilai, who has been with the company since 2001. Each of the two companies put up 300 million shekels in cash for the company as their share of the deal.

As for the rest of Africa Israel, there is another 5% of Africa Properties the company still holds that may still be sold to the Mega Or-Big group. But the main assets yet to be sold are its stake in the company that operates the Route 6 toll road and Africa Residences, the home builder 74% controlled by Africa Israel’s Danya Cebus construction unit.

In the past there has been interest in buying Africa Residences, but regulatory issues will make completing any deal very complicated.

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