Meiman: I won't seek haircut, just deferral
Owner of Ampal, which is negotiating over debt restructuring, tells Calcalist: 'We could have either made payments in 2012 but opened 2013 with depleted cash and harmed bondholders, or postponed payments by two years while waiting for gas to return'
However, a series of attacks on the gas pipeline, in which Ampal holds a 12.5% stake which lasted until last week, continued to force bond prices down, and it seems that after the market has come to terms with the company's inability to meet its financial obligations, the company's management should follow suit.
Calcalist's website revealed on Monday that Ampal has been meeting with institutional investors in an attempt to obtain a debt restructuring deal. Shortly after, the company publicized plans to ask for a two-year deferral of the principle payment to its bondholders.
The company offered a debt restructuring scheme in which it would compensate is bondholders by increasing interest.
Several institutional investors also demanded personal guarantees from Meiman, as well as stock options; others refused to negotiate with the company and threatened liquidation in the claim that with Ampal's robust cash reserves and the liquidation of its liquid assets, they would enjoy a higher compensation than the current market value of the company's bonds.
Ampal stated in its announcement that it planned to summon a bondholders' meeting to ask them to appoint a joint committee to represent the three bond series in order to negotiate for a debt restructuring deal.
Ampal also said it was seeking a two-year deferral on the interest payment which amounts to NIS 116.7 million ($31 million).
Ampal's debt in bonds, principle and interest amounts to NIS 1.27 billion ($340 million). The company claims that a two-year deferral of the payment will allow it to improve the performance of subsidiaries such as Gadot Chemicals, to beef up its future cash flow.
At the same time, Israel Corporation announced through subsidiaries Israel Chemicals and Oil Refineries that it is holding off on exercising its option to purchase Egyptian gas for another six weeks.
About a year ago, the company announced it would purchase about 1.4 BCM of natural gas for some $4 billion. The agreement with Egypt originally included an option for additional purchases; however, due to disruptions in the gas supply and recent sabotage of the pipeline – the 10th of its kind – it was decided to freeze the purchase.
"Exactly a year ago, in December 2010, we were scheduled to launch a huge road show for EMG's financing round with Goldman Sachs as underwriters," Meiman explains in an interview to Calcalist. "A month later, events unfolded in Egypt and since then problems have ensued.
"There is a great deal of uncertainly in Egypt and the gas isn't flowing. We thought it best to give Ampal some time to come up with a solution. We are currently attempting to reinstate the gas supply with the assistance of the Israeli and US governments.
"Two months after the first explosion we took legal measures. I suppose we need to give the Egyptians time to sort out their affairs."
In a conference last July, Meiman somewhat changed his tune when asked about the debt restructuring deal: "I hope we reach an agreement with the Arab countries or maybe even with the Palestinians. We'll stick to peace agreements. I have no idea what you're talking about."
Why did you decide on a two-year deferral?
"We estimate that getting the gas back online will take a while. Our legal advisors say that in the event things don't work out, a legal procedure might take two years.
"We decided it would be irresponsible of us to compromise our cash reserves or harm our bondholders and that the responsible thing to do would be to postpone the principle. We're not seeking a haircut but a deferral of the payment while paying the interest."
What made you pull out now? The disruptions in the gas flow and pipeline explosions have been going on for quite a while.
"Throughout the entire period, the Egyptian government fixed the pipe and resumed the gas supply. We believe that this time too Egypt will resume the supply, but they are having their general elections.
"I must stress that the Egyptian government has every interest to resume the gas supply. We are interested in having the Egyptians fix the pipe and resume the supply."
What options did you weigh?
"We had few choices. We could have either made the payments in 2012 but opened 2013 with depleted cash reserves and harmed the holders of the series that matures in 2013, or postponed payments by two years while waiting for the gas to be back online.
"You must understand that matters were out of our hands. Ampal has $60 million in its coffers. In 2012 and 2013 the company is supposed to pay $40 million each year and $15 million in interest. In the next few days we will meet with our bondholders who will appoint representatives and will begin negotiations."
Would you be willing to pledge personal guarantees? To give any compensation in the interest?
"I'll negotiate with them, not with the media. All the large institutional investors hold our bonds."
You cite Gadot as a company that you will endeavor to develop. Does this mean that you're relying less on gas?
"We are relying on gas and on Gadot. Gadot is a good company and we'll keep improving it."
You are a seasoned businessman. What does your gut feeling say? Will the gas return? Fewer and fewer people believe it will.
"I'll leave predictions to others. Egypt has a political and economic interest to sell us gas and Israel has a political and economic interest to buy gas from Egypt. I believe that any regime that will rise in Egypt will uphold these ties. If the Egyptians sever them, they will be harming foreign investments in the country."
Assets to serve debt till end of 2012
As of September 30, Ampal had $108 million in cash and short term investments. Assuming Ampal will not make any more investments, its liquid assets are sufficient for the company's current needs and for paying bondholders the principle up to the end of 2012.
A year after Ampal sold Internet provider 012 Smile to Partner Communications for NIS 1.5 billion ($400 million) – only a year after acquiring the company from Shaul Elovitch for NIS 1.2 billion ($320 million) – its main holding now is EMG, in which it has a 12.5% stake.
Meiman held a stake in EMG through Merhav. He acquired the controlling stake of Ampal from the Steinmetz family for $90 million – a price that reflected a 50% premium on the market value.
After three and a half years in which he cleaned up Ampal's investment portfolio, Meiman decided to transfer half of his EMG holdings to publicly traded Ampal for $258 million.
In 2007, Meiman sold 4.4% of his EMG stock to institutional investors in two stages for $97 million, thus selling a total of $355 million in EMG shares to Ampal and institutional investors.
Ampal CFO Irit Iluz, who is handling the company's negotiations with bondholders, was part of the move and enjoyed bonuses of about $4.5 million from the Merhav Group during 2005-2010 for her part in the deal.
Over the past several years, Ampal continued to invest in green energy and chemical Industries. Ampal holds a 50% stake in Global Wind Energy together with Clal Energy (50%) which has wind generated electricity production operations in Greece and Poland. Ampal also owns a 25% in the sugar cane ethanol gas project in Colombia.
Ampal also operates in the chemicals industry through Gadot Chemicals, which purchases, markets, distributes and ships chemicals. Gadot's operations mitigated the damage Ampal incurred from EMG's activity, and the company's revenue for the third quarter amounted to $165.4 million – 34% higher than the same quarter last year.
The substantial growth rate was due mainly to the performance of Gadot Chemicals, which posted a $139 million revenue – up 14% as compared to the same quarter last year.
EMG write-down leads company to losses
Despite climbing revenues, Ampal's bottom line sustained a $20.3 million loss attributed to its shareholders, mainly due to the write down of its Egyptian gas investment. For comparison's sake, Ampal ended the third quarter of 2010 with a $25.8 million loss.
However, despite losses, Ampal's executive management continues pocketing hefty compensations. Meiman's compensation in 2010 cost the company $3.4 million, which included a base salary of $1.5 million and a cash bonus of $1.3 million.
Irit Iluz enjoyed a salary costing about $1.9 million – a 35% rise as compared with her compensation in 2009. Gadot CEO Erez Meltzer, on the other hand, had to "make do" with a salary costing $1.1 million, half of which is a base salary.
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