Shari Arison seeks to raise up to NIS 1.8b in debt

Sources inform ''Globes'' that Arison Holdings Ltd., through which Shari Arison controls Bank Hapoalim (TASE: POLI) is seeking to raise NIS 1.3-1.8 billion in debt in a private bond placement. Arison Holdings currently has NIS 1.5 billion in non-traded bonds, and it is offering bondholders to exchange these bonds for the new bond series.

Many Arison Holdings' bondholders will reportedly accept the offer. However, bondholder who decline the offer, and keep the current bonds, will be repaid on schedule. Arison Holdings executives are in talks with banks and investment institutions to participate in the planned offering, which is due to be held by the end of the year.

The debt offering is apparently intended to extend the average duration of Arison Holdings' bond, because Bank Hapoalim is constrained from distributing dividends, which are the main source of revenue for meeting the bond payments. Arison Holdings owns 20.3% of Bank Hapoalim, which has a market cap of NIS 4.3 billion. The Bank of Israel is blocking banks from distributing dividends in order to increase their capital adequacy ratios, and until the new targets are met, no dividends can be distributed. Bank Hapoalim must reach a capital adequacy ratio of 9% by the end of 2013 and 10% by the end of 2015.

Without dividends from Bank Hapoalim, Arison Holdings mainly relies on support from Shari Arison to meet its debt payments. The company is considered financially sound with an estimated debt-to balance sheet ratio of 60%.

Although the details of the planned debt offering have not yet been finalized, the bonds' average duration will reportedly be 6.5 years, compared with the two years for the current bonds, which were issued in 2007. In exchange for the longer duration, bondholders will receive a higher interest rate from the 4.9% annual interest rate on the current bonds.

The new bonds' main benefit will be their guarantees and covenants. Arison Holdings owns the controlling core in Bank Hapoalim, and these shares cannot therefore be attached to the bondholders. Instead, they will be given a negative lien (Arison cannot attach the shares to a third party), and she promises that Arison Holdings not launch new activity or make acquisitions. These two conditions mean that Bank Hapoalim shares are de facto attached to Arison Holdings' bondholders, even if they are not attached de jure.

In addition, in July, Shari Arison gave a NIS 500 million guarantee to Arison Holdings, which led to an upgrade in its debt rating and a reduction in the bonds' interest rate. As part of the planning debt offering, this guarantee will be amended, and instead of being in favor of the company, it will guarantee the holders of the new bonds, improving their condition, and giving current bondholders an incentive to exchange their current bonds for the new ones.

Shari Arison owns both Arison Holdings and Arison Investments Ltd., which controls Shikun & Binui Holdings Ltd. (TASE: SKBN), water venture MIYA, and Israel Salt Industries Ltd., which owns 6% of Bank Hapoalim. She is also responsible for the family's philanthropic activity through the Ted Arison Family Foundation.

Published by Globes [online], Israel business news - www.globes-online.com - on October 29, 2012