Leviev to combine building, property units

Real estate developer Africa Israel Investments will sell its 74.5% stake in Africa Israel Properties to its subsidiary Danya Cebus, a move that will likely help it retire debt.

Danya Cebus will pay NIS 648 million ($180 million) for the 9.38 million shares, or NIS 69 a share.

Deutsche Bank analyst Dan Harverd said Danya Cebus was paying a premium for gaining control of a leading real estate developer, with a strong potential for synergies.

Africa Israel Investments, which owns 73% of Danya Cebus, said it would not post a capital gain since the sale is to another subsidiary. However, it will have a cash inflow of NIS 648 million.

"I would expect them to use the proceeds for early retirement of short-term debt. This is obviously positive for the company," Harverd told Reuters.

Shares in Africa Israel Investments were up 2.3%.

Africa Israel Investments, controlled by billionaire diamond dealer Lev Leviev, was hit hard by the real estate meltdown in the United States, Russia and eastern Europe.

The company defaulted on a series of bonds and in May restructured $2 billion debt, a move reflected for the first time in the second quarter when it swung to a net profit.

It has been selling off assets since then to help reduce debt. Africa Israel Investments Chief Executive Izzy Cohen said Africa Israel Properties was an important strategic asset and therefore the company has been working to keep its residential development activities within the group.

Africa Israel Properties, which develops residential projects, and Danya Cebus, a leading contractor and infrastructure company in Israel, have been cooperating for years. Combining the two will create synergies and improve profits for the parent company, Africa Israel Investments said.

"This move, based on the synergies that exist between the development and construction activities of the Africa Israel group in residential real estate, will contribute greatly towards competing on residential projects in Israel while maximizing the group's profits," Cohen said.

The deal values Africa Israel Properties at NIS 870 million, which Harverd noted was towards the high end of an NIS 800-890 million valuation given by Ernst & Young.

Africa Israel also has interests in energy and infrastructure. It owns 71% of AFI Development, a Russia-focused real estate company.

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