Lev Leviev knows as well as anyone that it’s the cut of a diamond — how the rough stone is shaped and polished — that determines its value. The Israeli entrepreneur is hoping that the same general principle applies in finance.
Leviev turned a diamond-cutting empire into a global real estate business, Africa Israel Investments, only to see the value of properties acquired at the peak of the boom collapse in the financial crisis. But after months of negotiations, Leviev has agreed on a restructuring of the company’s 7.5 billion-shekel ($2 billion) debt that he believes will cut its obligations and put Africa Israel in more attractive financial shape.
Leviev borrowed heavily earlier this decade to develop or acquire everything from shopping malls in Russia to U.S. hotels and office buildings to a toll road in Israel. When he announced plans to seek a restructuring back in August, he said his “most significant mistake” was his U.S. investments, led by the 2007 purchase of The New York Times’ former headquarters near Manhattan’s Times Square. Africa Israel paid $525 million — three times the purchase price in 2004 — and took on more than $650 million in debt as part of its plan to redevelop the property. In December the company succeeded in a restructuring of that project that reduced the debt by 60 percent and gave one of its creditors, Stamford, Connecticut–based hedge fund Five Mile Capital Partners, a 50 percent stake in the building.
That deal involved only a handful of creditors, including Five Mile Capital and Carlos Slim’s Banco Inbursa. Tackling Africa Israel’s $2 billion in debt — which involved 13 different bond issues and dozens of institutional investors, mostly Israeli concerns like Psagot Investment House and insurance companies Clal Group and Harel Insurance Investments & Financial Services — proved more challenging.
In November, Africa Israel announced a tentative agreement to replace the outstanding debt with $1.7 billion in new bonds, shares in Africa Israel and its subsidiaries, and cash at a rate of seven cents on the dollar. Holders of one of the 13 bond issues, which matured that month, rejected Africa Israel’s claim that it was insolvent and threatened to block the deal unless they got better terms. Their resistance in turn prompted holders of bonds due in 2010 to balk at the proposal.
Eventually, Africa Israel agreed to sweeten its offer — at an all-night negotiating session at the Tel Aviv offices of Lipa Meir & Co., a law firm representing the main bondholders’ group. Under the revised terms, holders of the November bonds are to receive cash at a rate of 45 cents on the dollar, and holders of bonds due this year will get cash at 34 cents on the dollar. All other investors, who hold 88 percent of Africa Israel’s debt, will get cash at seven cents on the dollar and an additional 76 million shekels’ worth of new bonds. The shares included in the restructuring will reduce Leviev’s stake in the company to 53 percent from 75 percent. In addition, Leviev agreed to inject 750 million shekels into the company.
Amir Bartov, a Lipa Meir lawyer, said the revised offer was backed by his clients and should win the required approval of 75 percent of debt holders in a vote to be held this month.
Leviev’s real estate foray carried a steep cost. The tycoon slid to 468th place among the world’s richest people, with a net worth of $1.5 billion, down from 210th and $4.1 billion in 2007, according to Forbes magazine. Africa Israel has seen its stock price plunge by 92 percent from its May 2007 peak, when the company was worth some $7 billion. Still, most observers expect Leviev to bounce back. This is a man who emigrated from Uzbekistan in 1971 at age 15, began working as an apprentice diamond cutter and later turned his own privately held company into the world’s largest cutter and polisher of diamonds.
“Leviev is keeping control of Africa Israel, and the company’s future is no longer in doubt,” asserts Shay Lipman, an analyst at Tel Aviv–based firm Israel Brokerage & Investments. “The institutional investors have recognized that Leviev needed to stay, and were willing to pay for it.”
