Ampal-American Israel Corporation Debentures Downgraded to Baa3 With a Negative Outlook
May 26 2011 - 10:45AM
Ampal-American Israel Corporation (Nasdaq: AMPL),
a holding company with experience in acquiring interests in various
businesses with emphasis in recent years on energy, chemical and
related fields, announced today that Midroog Ltd. (an affiliate of
Moody's Investors Service) ("Midroog") has removed Ampal's Series
A, Series B and Series C Debentures (the "Debentures") from
Midroog's "Watchlist" and has downgraded the Debentures' ratings by
two notches, to BAA3 from BAA1 with a negative outlook. The
Debentures are listed and traded on the Tel Aviv Stock Exchange
Midroog announced in its report that in January 2011 it had
placed the Debentures' ratings on Midroog's "Watchlist" due to the
destabilization of the political and financial environments in the
State of Egypt. In March 2011, the Debentures' ratings were
downgraded, from A3 to BAA1, while keeping them on Midroog's
"Watchlist", all due to the on going uncertainties with regard to
the ability of East Mediterranean Gas Company S.A.E. ("EMG"), in
which Ampal has a 12.5% interest, to continuously supply gas.
Midroog noted that the current downgrading of the Debentures'
ratings is due to the increase in the risk factors of Ampal's
holding in EMG, as EMG constitutes 65% of Ampal's holdings' book
value and its "Event Risk", as defined by Midroog, is increasing
due to the following: on April 27, 2011, gas supply from Egypt to
Israel was interrupted again, due to a terror attack on the
Egyptian part of the gas pipeline, and according to Ampal's
announcements, gas supply is expected to resume by the end of May.
The current interruption in gas supply follows a 5 week gas supply
interruption, which occurred during March-April 2011, under similar
circumstances. Midroog also noted that in April 2011, there was
another attempt to sabotage the pipeline, and that such attempt
failed. The reoccurrence of such events implies an increase of the
"Interruption Risk" associated with EMG's business. Midroog cannot
estimate the likelihood of the reoccurrence of such terror
attacks.
Ampal informed Midroog that the Egyptian government is taking
additional substantial security measures in order to thoroughly
secure the Egyptian gas pipeline, which Midroog noted in its
report.
Midroog added that the geo-political instability in Egypt, as
well as the uncertainties with regard to the upholding of current
agreements between EMG and its Egyptian gas supplier, and the
possible ramifications on EMG's supply margins, has implications
for EMG's risk factors.
Midroog stated further that the current rating is not
appropriate for a situation with an extensive stoppage in EMG's
activity.
Midroog noted that in the current rating it took into
consideration the facts that EMG enjoys several business advantages
among them being an increase in natural gas demands in Israel,
attractive prices compared to local Israeli alternatives (even
after the increase in the gas prices by EMG on 2009) and the
economics and geopolitical importance to Egypt in maintaining gas
sales to Israel.
Midroog further noted that the current rating is also based on
Ampal's relatively high free cash balance, which are approximately
US$170 million as of March 31, 2011, mainly due to the sale of 012
Smile and Ampal's debentures issued on 2010. However, Midroog noted
that Ampal's liquidity is limited in time, since Ampal's ability to
receive dividends from its subsidiaries is yet to be evident.
Midroog estimates that Ampal's current cash balance shall suffice
for Ampal's ongoing activities and for the repayment of its
principal debt during 2011-2012, assuming no further substantial
investments are made.
Midroog listed the following factors as possible factors for
further downgrading of the Debentures' ratings: the renegotiation
of EMG's gas purchase agreement with its Egyptian supplier,
resulting in the reduction in EMG's profits and its value; the loss
of strategic clients; and a situation in which gas supply will not
resume for an extended period.
Midroog listed the following factors as possible factors for
upgrading the Debentures' ratings: stabilization in Egypt's
geo-political environment which will reduce the uncertainties
concerning EMG's business environment and a substantial decrease in
Ampal's leverage level.
Due to the above downgrading of the ratings of Ampal's Series C
Debentures and according to the terms of the Series C debentures,
the Series C debenture holders, will be entitled to additional
interest payments which will be calculated as follows:
- The annual interest on Ampal's Series C Debentures since their
issuance and until May 25, 2011 was 6.95%;
- The annual interest on Ampal's Series C Debentures from May 26,
2011 and thereafter will be 7.70%;
- The weighted average interest that Ampal shall pay its Series C
Debentures holders on the upcoming interest payment day, on
September 7, 2011, will be 7.37% and therefore the interest to be
paid on September 7, 2011 will be 3.685%.
- The annual interest on Ampal's Series C Debentures as
reflected from the above weighted average interest is 7.40%;
- The annual interest on Ampal's Series C Debentures for the
upcoming periods will be 7.70%; and
- The semi-annual interest on Ampal's Series C Debentures for the
upcoming periods will be 3.85%.
Mr. Yosef A. Maiman, Chairman, President and Chief Executive
Officer of Ampal commented on Midroog's report as follows:
- "As of March 31, 2011, Ampal has a relatively high free cash
balance of approximately US$170 million.
- Moreover, we believe that even if the expected dividend from
EMG is delayed beyond 2011 and 2012, the cumulative effect on
Ampal’s anticipated cash flow would not exceed US$10 million.
- Furthermore, Ampal received for its March 31, 2011 financial
report an update to the independent valuation of EMG, according to
which no reduction in the value of EMG in Ampal's financial
statements was required.
- It is important to point out that although EMG constitutes 65%
of the book value of Ampal's holdings, it constitutes only 25% of
Ampal’s total assets and 44% of Ampal's assets on a solo
basis.
- The recent acts of terror in Egypt which twice caused supply
interruptions are certainly a cause for concern, and as Egypt is
undergoing a period of domestic instability, we view these acts as
short term consequences of internal political change, which are not
relevant to Ampal’s long term ability to meet its obligations.
- Moreover, we take note of several important factors which point
to the long term durability of the Egyptian commitment to the gas
contract with EMG. These include:
- Following the first explosion and supply interruption, gas
supply was resumed by the post-revolution government in Egypt.
- Following the second explosion, which was also not directed at
EMG or at the Israeli market, but at the entire Egyptian export and
domestic gas flow in and out of the Sinai (Jordan, Syria and
Lebanon included), the Egyptian government is in the process of
substantially enhancing gas supply system security.
- Over the past couple of weeks, both Egypt’s Minister of
Petroleum and its Minister of Foreign Affairs have made firm public
statements reiterating their government’s commitment to the export
of gas to Israel and to the resumption of supply as soon as works
on the delivery system are completed.
- The EMG gas contract is governed by a bilateral agreement
between the two countries; and each EMG shareholder’s investment is
protected by the EMG Gas Sale and Purchase Agreement with the
Egyptian government as well as via several bilateral treaties for
the protection of investments.
- EMG is the most attractive client for Egyptian gas as its price
is the highest among all Egyptian export venues (whether via
pipeline or as LNG), and is substantially higher than the net back
price received by such world major exporters as Russia and
Qatar."
About Ampal:
Ampal and its subsidiaries acquire interests primarily in
businesses located in the State of Israel or that are
Israel-related. Ampal is seeking opportunistic situations in a
variety of industries, with a focus on energy, chemicals and
related sectors. Ampal’s goal is to develop or acquire majority
interests in businesses that are profitable and generate
significant free cash flow that Ampal can control. For more
information about Ampal please visit our web site at
www.ampal.com.
Safe Harbor Statement:
Certain information in this press release includes
forward-looking statements (within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and information relating to Ampal that are
based on the beliefs of management of Ampal as well as assumptions
made by and information currently available to the management of
Ampal. When used in this press release, the words "anticipate,"
"believe," "estimate," "expect," "intend," "plan," and similar
expressions as they relate to Ampal or Ampal's management, identify
forward-looking statements. Such statements reflect the current
views of Ampal with respect to future events or future financial
performance of Ampal, the outcome of which is subject to certain
risks and other factors which could cause actual results to differ
materially from those anticipated by the forward-looking
statements, including among others, the economic and political
conditions in Israel, the Middle East, including the situation in
Iraq and Egypt, and the global business and economic conditions in
the different sectors and markets where Ampal's portfolio companies
operate. Should any of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results or
outcome may vary from those described herein as anticipated,
believed, estimated, expected, intended or planned. Subsequent
written and oral forward-looking statements attributable to Ampal
or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements in this paragraph. Please
refer to the Ampal's annual, quarterly and periodic reports on file
with the SEC for a more detailed discussion of these and other
risks that could cause results to differ materially. Ampal assumes
no obligation to update or revise any forward-looking
statements.
CONTACT:
FOR: AMPAL-AMERICAN ISRAEL CORPORATION
CONTACT: Irit Eluz
CFO - SVP Finance & Treasurer
1 866 447 8636
irit@ampal.com
FOR: KM/KCSA - Investor Relations
CONTACT: Roni Gavrielov
011-972-3-516-7620
roni@km-ir.co.il
Jeff Corbin / Marybeth Csaby
212-896-1214 / 212-896-1236
jcorbin@kcsa.com / mcsaby@kcsa.com
FOR: PM-PR Media consultants
CONTACT: Zeev Feiner
011-972-50-790-7890
z@pm-pr.com
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