It's hard to believe, but the Israeli government is joining the wave of debt arrangements by companies that have issued bonds to the public. Sources inform "Globes" that Agrexco, which is controlled by the state, is proposing a 35% "haircut" to its bondholders.
This week, "Globes" revealed that Agrexco intended to turn to a debt arrangement because of heavy losses it incurred last year, and a going concern warning that its auditors appended to its financial statements.
The agricultural export company owes €32 million (about NIS 150 million) to institutions to which it issued bonds in 2007. It is now proposing to them to convert 35% of the debt to 10% of its equity, and the rest to reschedule over along period. In return, the state will inject capital into the company and make a partial payment in cash.
Agrexco had revenue of some €490 million in 2010, but posted a net loss of €33 million. The company explains the losses by a loss of market share in Europe, the weakness of the euro, and climatic events in Israel.
Agrexco has a deficit of €13 million on shareholders' equity and a €49 million working capital deficit. It financial liabilities stand at €83 million, and it has failed to meet financial covenants in its bond trust deed.
Apart from the debt to bondholders, Agrexco has debts to banks and suppliers in Israel, and a large debt to a French bank. "Globes" has learned that the company owes about €60 million to the Ofer family, under a deal to lease two refrigeration vessels from Ofer Shipping. The ships were designed, ordered and built by and for Agrexco with finance from a German bank, with no connection to Ofer Shipping.
After two years of operating the ships, the company approached Ofer Shipping with a request that Ofer should buy the ships and operate them for it, as it was dissatisfied with the way the ships had been operated by a foreign company.
Ofer Shipping came to Agrexco's aid, and bought the ships, leasing them to Agrexco for 14 years, which will end in December 2019. The money paid by Agrexco to Ofer Shipping mostly serves to repay the loan from the German bank, with the rest covering operating expenses.
Ofer Brothers said: "We were sorry to hear of Agrexco's financial problems, and we are currently studying the company's announcement about the matter. We very much hope that the German bank and the company will find a suitable way of helping with a streamlining plan and with the continuation of Agrexco's important activity. We, Ofer Shipping, will support any agreement reached between Agrexco and the German bank."
When Agrexco was founded in 1953 it received a government monopoly on the export of fresh agricultural produce, apart from citrus fruits, and its success was assured. However, over the years, agricultural exports have been opened to competition, and now Agrexco accounts for only 50%. The state plans to privatize the company. At the end of 2010, it injected NIS 55 million into Agrexco, after the company failed to meet shareholders' equity conditions.
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