Bondholders of Lagna Holdings Ltd. (TASE;LGNA) are threatening to liquidate a sale of the company if its proposed sale by Shaya Boymelgreen-controlled Azorim Investment, Development and Construction Ltd. (TASE: AZRM) harms their rights. On Tuesday, "Globes" reported that an investor group headed by Universal Motors Israel Ltd. (UMI) owners Haim Assayag and David Eini were in advanced talks to buy the real estate company.
The bondholders' attorney, Adv. Menachem Gurman told "Globes" today, "Without the consent of the bondholders, acquisition of the controlling interest in Lagna is not possible." He added that he would summon a bondholders' meeting in a few days to discuss how to defend their rights.
Azorim acquired 74% of Lagna in 2006 from Jacob Engel at a company value of NIS 600 million. Its current market cap is NIS 37 million, and its debts amount to NIS 2 billion, including NIS 750 million owed to bondholders of Lagna and its subsidiaries. They include NIS 150 million in a Lagna bond, NIS 350 million in an Engel Europe Ltd. (TASE: ENGR1 ,ENGR5) bond, and NIS 250 million in an Engel Resources and Development Ltd. (TASE:ENRS) bond.
Gurman said, "While Lagna's bondholders debt is smaller than the debt of Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY), we're talking about a very complex structure of a chain of public companies. The bondholders all face conflicts of interests because of cross-holdings in the companies' stocks and bonds. The blanket is short, and only limited resources to repay the debts."
Lagna lost NIS 86 million in the first half of 2009, and its shareholders' equity deficit was NIS 210 million at the end of June. The company's auditor appended a going concern warning to the financial report for the second quarter. Most of the company's projects in Eastern Europe have been suspended indefinitely.
Azorim has a problem. Legally, it can sell Lagna, and even make a capital gain of NIS 30 million, after writing off the entire investment. On the other hand, it wants to maintain good relations with the bondholders because some also hold Azorim bonds, or block any future attempt by Azorim to raise capital from institutional investors.
Gurman said, "Lagna hasn’t the wherewithal to pay its debts, so the bondholders are the owners of the company."
"Globes": When will you decide to seek liquidation of Lagna?
Gurman: "If we are not shown justice in a debt settlement with the bondholders, we'll have no choice to demand immediate repayment. The bondholders will insist on their rights, including the appointment of a receiver and liquidator on their behalf. On the basis of Azorim's current position, we're more likely to go to receivership than a settlement."
Gurman also lambasts Lagna debt repayment policy. "It's unacceptable that Azorim will take care to get back the owners' loan it extended for the joint purchase of land in Ukraine with Engel Resources ahead of repaying debts to Lagna bondholders."
Published by Globes [online], Israel business news - www.globes-online.com - on October 18, 2009
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