Bethel Finances: Koor continues buying Credit Suisse shares

www.bethelfinance.com

Koor Industries Ltd. (TASE:KOR) purchased about NIS 200 million in Credit Suisse Group AG (NYSE: CS; SWX: CSGN; XETRA: CSGZ) shares in the first half of November, according to the company's financial report for the third quarter of 2011. Nochi Dankner, who controls Koor through IDB Holding Corp. Ltd. (TASE:IDBH) unit Discount Investment Corporation (TASE: DISI) is not deterred by Koor's NIS 3.1 billion loss in January-September, most of which was due to its holding in Credit Suisse.

Credit Suisse's share price has fallen 13% since the beginning of November, and Moody's Credit Ratings put the bank on its watch list earlier this week, saying that the bank was liable to publish weaker than expected results for the third quarter.

Today, Koor announced that it will open talks with the banks (Citigroup Inc (NYSE: C) and Morgan Stanley (NYSE: MS)) that lent it the money to buy Credit Suisse shares in order to amend the financial covenants for two more years. Koor wants to lower the interest rate paid on the used credit, lower the floor price at which the banks have the right to demand immediate repayment to CHF 12 per share for Credit Suisse, and reset the maximum debt-to-collateral ratio at 65%. Koor also wants to reduce the outstanding credit to a maximum of CHF 500 million, in view of the company's increased liquidity. The last point relates to the sale of Makhteshim Agan Industries Ltd. to China National Chemical Corporation (ChemChina) and the sale of the company's stake in the HSBC US headquarters in New York.

Credit Suisse's share price fell 2.3% in New York yesterday to $22.84, and fell 1.5% in Zurich to CHF 21.17.

Meanwhile, Midroog Ltd. cut its bond rating for Koor from A1 to A2, but raised its outlook from "Negative" to "Stable".

Midroog says, "The holding in Credit Suisse shares exposes the company to high market risk, and resulted in the reporting of heavy losses for the second and third quarters of the year… During the fourth quarter, the company has repaid additional financial debt from the sales of the ChemChina deal and greatly improved its flexibility related to its financial covenants of the Credit Suisse shares. However, we believe that, despite the sharp drop in the share price, the risk is still high in view of the high volatility in capital markets, specifically the effect of the debt crisis in Europe on the continent's financial institutions."

Although Koor reported a capital gain of $1 billion (about NIS 3.5 billion) on its Credit Suisse holding two years ago, that has been almost wiped out by the NIS 3 billion loss in January-September. Add the NIS 800 million in financing expenses, mainly related to the Credit Suisse deal during this period, Koor has ended up with nothing. Moreover, the current paper loss on the holding is NIS 276 million, which will be reported in the fourth quarter, unless Credit Suisse rebounds.

Koor's loss on its investment in Credit Suisse was NIS 1.28 billion for the third quarter, including NIS 900 million from the reduction in value on the asset and a loss of NIS 378 million from the sale of shares.