Israeli entrepreneur Amir Shriki’s romance with the Tel Aviv capital market lasted just eight months. Aya New York, his company, has decided to immediately redeem the bonds it issued in February, totaling 292 million shekels ($95.4 million). A bondholders’ meeting this week will decide whether to accept the proposal, which was formulated together with the major bondholders, Israeli investment firms Yelin Lapidot and Meitav, as well as Mishmeret Trust Company, the bond trustee.
The move comes against the backdrop of a dispute between the company and its bondholders that began with the publication of its second-quarter financial statements. The reports revealed that Aya subsidiaries, including companies whose properties are pledged as collateral to bondholders, had entered into agreements with several entities under which they committed to pledge future proceeds.
Amir Shriki, controlling shareholder of real estate company Aya New York
(Photo: Shaun Bruce)
Shriki and Aya said they had been unaware of the arrangements and corrected the problem. However, holders of 45% of the bonds appointed attorneys Guy Gissin and Yael Hershkovitz to represent them in dealings with the company, alleging that it had committed violations. Shriki quickly decided to call it quits and end the brief relationship.
“I met with the major bondholders, Yelin Lapidot and Meitav, as well as the bond trustee, and I decided to redeem the bonds early at par value (100%), even though they are trading at 86% of par,” Shriki said in his first interview in Israel, with Calcalist.
Two of the company’s Manhattan properties, valued at $137 million, are pledged as collateral for the bonds. The company owns five properties in total, all in Manhattan.
Shriki, who was born in Eilat in 1977, moved to Manhattan in 2007.
“The company I founded leased properties, improved them and then rented them out at prices about 40% higher. I didn’t have the equity to buy properties, so this was the way to build it up, by establishing a co-living company, a model that is common in the U.S. In 2014, we began buying properties and built a fairly substantial portfolio that was eventually sold. With the five properties we currently own, our goal is to build a billion-dollar company,” he told Calcalist.
The company is named Aya after his 10-year-old daughter, whom he raised on his own. He later returned to Israel with her and married Diana, who was then an attorney at the Firon law firm.
“She warned me not to enter the Israeli capital market because ‘they’ll eat you alive.’ I told her, ‘I’m from Eilat and I’m Moroccan. Who’s going to mess with me?’ In hindsight, she was right.”
Shriki runs the company from Israel, making frequent trips to Manhattan.
“It’s difficult,” he admits. “Mainly because of the time difference, which means I work until midnight every day.I’d move back to Manhattan right now, but she isn’t willing to.”
Why did you raise money through bonds in Israel?
“There are American companies that come here out of distress and necessity, and they need this money like oxygen. That isn’t the case with Aya. We intended to use the money to acquire properties out of bankruptcy. That’s our specialty, and there are a lot of those opportunities under the radar.
“During the roadshow, I told the institutional investors, ‘I’m getting cheap financing here and providing property liens as collateral because it’s important to me to have the Israel Securities Authority recognize what we’re doing. I also intend to issue additional bond series without collateral and use them to finance deals.’
“We made the move as part of a strategy, but timing matters. In the months since then, the market has lost confidence in American BVI companies against the backdrop of the events involving Simad, Kahan GFI and others, where owners took money out of the companies. I realized that American companies don’t stand a chance of raising money here for the next two years, so I decided to cut my losses. There’s a kind of discrimination here against BVI companies, although I understand the concerns about such companies in light of the fraud that has occurred at some of them.”
You announced that you would refinance the debt. Where will you get the money to repay it?
“The money is already secured. Over the past month, we held a bidding process among financial institutions in the U.S., and a major international bank provided me with $100 million at an annual interest rate of less than the 7.7% I have to pay here.
“For future deals, we’ll use financing and mezzanine loans, and a $100 million transaction will require just $15 million in equity. Here in Israel, dealing with the bondholders is a headache and a drama that consumes valuable resources.
“It was important to me to walk away with my reputation intact, so I offered to repay the bonds in full, without seeking a reduction in the debt or a restructuring. The entire negotiation lasted just 40 minutes, and the bondholders cooperated.”
Still, you committed a foul by placing an additional lien on assets that were already pledged to the bondholders.
“The additional lien was for $3.3 million, and it resulted from a misunderstanding. The money was used to buy out a minority partner, who made a significant exit of $13 million over two years. As soon as the Fischer law firm explained to us that this wasn’t permissible, we corrected it within 48 hours.
“But the bondholders used it to create exposure for us. My choice was either to educate the market or move on, and I chose the second option. There’s no point in staying here.”
Value Base, the underwriter for the bond offering, sued you for failing to pay its fee.
“At the time of the offering, we instructed that 5.3 million shekels ($1.7 million) be transferred to them even though they had failed, and they said they refused to accept it. They demanded 8 million shekels ($2.6 million) because there is a success fee that is at the company’s discretion. We offered another 1 million shekels ($327,000), and they wouldn’t agree. From there, it became a legal dispute.”