David Wainer – Bloomberg
Israeli billionaire Lev Leviev told a roomful of reporters in August at the beachside Tel Aviv Crowne Plaza hotel he owns that his Africa-Israel Investments Ltd. would seek to restructure about $2 billion of debt.
“Our biggest mistake was our investments in the U.S.,” said the diamond mogul turned real estate investor, who just two years earlier was ranked by the Israeli newspaper TheMarker as the country’s richest man. The revelation, in Leviev’s Russian- accented Hebrew, rocked Israel’s markets, sending its benchmark stock index to its biggest drop since June.
Leviev, 53, born in Soviet Uzbekistan, went from success to success in the decade before the credit crisis. He made his fortune as owner of the world’s largest cutter and polisher of diamonds before turning Africa-Israel into a multibillion-dollar company, with assets from Moscow to New York. He then bought landmark Manhattan properties with borrowed money just as the market reached its peak.
“He became, slowly, slowly, a very great believer in himself — that everything he touched turned into a success and that everything he did had God’s blessing,” said Avi Nota, who in 2007 stepped down as chief executive officer of an Africa- Israel division that develops projects in central and eastern Europe. “When the crisis emerged, he was caught blindsided.”
Leviev, a member of the Chabad-Hasidic movement who travels with a band of bearded bodyguards, is now trying to reach an agreement with Africa-Israel’s creditors to avoid having to seek bankruptcy protection. Africa-Israel bonds make up about 0.6 percent of the total amount of pension savings that Israeli financial institutions manage, the Finance Ministry said in August.
His Own Money
A proposal presented to the court on Dec. 2 would cut Leviev’s stake to 53 percent from 75 percent and inject about $200 million of his own money into Yehud, Israel-based Africa- Israel. The company had filed with an Israeli court to hold an official assembly, in which bondholders would vote on the debt deal.
The biggest economic meltdown since the Great Depression has reduced demand for real estate, making it harder for Africa- Israel, which has reported a loss in five of the past six quarters, to cover debt payments.
Leviev was one of several Israeli investors in New York real estate during the boom years, including fellow billionaire Yitzhak Tshuva, whose holding company purchased the Plaza Hotel in 2004 for $675 million.
Africa-Israel made its highest-profile acquisitions just before the onset of the credit crunch in 2007. They included the former New York Times headquarters on Times Square for $525 million and Manhattan’s Clock Tower building for $200 million.
The company’s Russian unit raised $1.4 billion selling shares in May 2007, at the time the biggest initial public offering by a developer in Europe. Leviev, a father of nine, subsequently moved with his family from Bnei Brak, an Orthodox enclave near Tel Aviv, to a mansion in London’s exclusive Hampstead neighborhood, paying a reported 35 million pounds ($57 million), according to London’s Daily Telegraph.
“Hubris was Leviev’s sin,” said Micha Cherniak, CEO at Lehava Investment House, which holds Africa-Israel bonds. “He stopped listening to the managers he hired and began calling all the shots, focusing on an aggressive expansion of the company.”
Rani Rahav, a spokesman for Leviev, declined to comment for this story and said Leviev isn’t giving interviews during the debt talks.
Leviev immigrated with his Bukharian family to Israel in 1971 from Tashkent, capital of the predominantly Muslim Uzbekistan. After a three-year stint in the army, he worked as an apprentice in a diamond-polishing plant and soon established his own factory.
In 1987, he became a “sightholder” for De Beers, which allowed him to purchase rough stones from the South African diamond cartel. Leviev began to undercut De Beers’s grip on the rough diamond industry when, two years later, Russia’s state-run diamond company asked him to help it set up its own cutting factories, according to a 2003 article in Forbes magazine. He acquired interests in mining companies and projects in countries including Namibia and Angola beginning in 1995, according to Africa-Israel.
“Leviev’s moves were extremely gutsy for those days,” said Martin Rapaport, a friend of Leviev’s who founded the Rapaport Group, a New York-based provider of diamond prices. “One reason he could do that is because he always believed, with very strong emunah (Hebrew for faith), that God was on his side.”
Still largely unknown in the corporate world, Leviev decided to diversify into real estate in 1996 by buying Africa- Israel, founded in 1934 by Jewish investors from South Africa.
Leviev recruited Lipa Meir, a corporate lawyer, to help with financing. Meir set up a meeting between Leviev and Moshe Amit from Bank Hapoalim Ltd., Israel’s second-largest bank by assets. The financial institutions had to do extensive background checks on Leviev because they didn’t have any pre- existing relationship with him, Meir said.
“He was a man of mysteries and riddles, and to a certain extent, he still is,” said Meir, now the lead attorney representing Africa-Israel’s largest group of bondholders.
Leviev eventually got the financing and bought a stake in the company for $190 million. Over the next decade, he expanded globally and hired new executives.
One of them was Nota, 60, who until late 1999 was deputy CEO in charge of product development at the company now known as Mizrahi Tefahot Bank Ltd. Nota, who wasn’t familiar with the mogul at the time, said that his job interview was interrupted by a pacing Leviev, who took phone calls in Russian almost every two minutes.
Gets the Job
Nota walked out feeling he had just wasted an hour of his time. He was shocked to receive a call minutes later from Leviev’s secretary, offering him another interview with Pinchas Cohen, Africa-Israel’s CEO at the time.
“You could never see through to his soul,” Nota said of Leviev. “The man is a sphinx.”
Leviev began doing business in New York after seeing an opportunity to break into the market following Sept. 11. He formed a partnership with New York real estate entrepreneur Shaya Boymelgreen, after meeting him on a Chabad-sponsored cruise in the Caribbean.
The two developed about 15 projects together, turning office towers — such as the former Wall Street headquarters of Chase Manhattan Bank, which they bought for $170 million in late 2004 — into residential properties, including a penthouse sold to actress Meryl Streep, Boymelgreen said. The two parted ways after five years, he said, because Leviev wanted to keep pursuing New York projects and Boymelgreen didn’t.
Timing Is Everything
“At the end of the day, timing is the most important thing,” Boymelgreen said in a telephone interview. “Everyone is a genius when times are good.”
Boymelgreen has faced financial difficulties of his own and has been working to renegotiate bank loan terms in the past year.
Two former executives recall that Leviev’s rapid expansion of Africa-Israel was a point of friction with former CEO Pinchas Cohen. Cohen, who was fiscally conservative and worried about taking on debt, often disagreed with Leviev, who wanted to acquire more properties and expand, the executives said.
Cohen, CEO from 1998 to 2006, declined to comment on whether he had disagreements with Leviev professionally, though he said the two remain friends and Leviev recently attended his son’s wedding. He also praised Leviev’s charitable commitments.
‘Helping Jewish People’
“He’s committed himself to helping Jewish people all over the world,” Cohen said. “He has learned to be an entrepreneur of international stature without forgetting the people around him.”
Outside the U.S., one area of focus for Leviev has been Russia, where his ease with the language helped him secure major contracts with the authorities and purchase plots of land for development. Many of those projects are now on hold or delayed, after demand for real estate sank in an economy that Prime Minister Vladimir Putin said on Dec. 3 may shrink more than 8.5 percent in 2009.
Russian holdings represent about half of the total value of Africa-Israel’s assets, said Yuval Ben-Zeev, an analyst at Clal Finance Brokerage Ltd. in Tel Aviv. They include the Mall of Russia, a 179,000-square-meter (1.93 million square feet) development. The shopping center, scheduled to open in August, is part-owned by the city government and could be worth more than $1 billion, according to Africa-Israel bondholders who did a valuation during debt talks.
“Leviev’s recovery is going to depend on the Russia rebound,” said Ben-Zeev, who has covered the company for six years and has a “sell” recommendation on the stock. “The Mall of Moscow can be the asset that will either break him or save him,” he said, referring to the Mall of Russia.
Africa-Israel shares, which plunged 91 percent in 2008, have fallen 15 percent since Aug. 31 as traders await a Dec. 20 court ruling on the debt plan. The stock rose 0.9 percent to 43.95 shekels in Tel Aviv today, giving the company a market value of 2.4 billion shekels ($630 million).
“The company is going through a minor crisis, but it will be viable,” said Aviad Visoly, a civil rights lawyer in Tel Aviv who holds several series of Africa-Israel bonds worth about 1 million shekels. “The company just opened a major mall in Romania, will open a major mall in Russia in the next eight months, and is developing major projects in Israel.”
Visoly is among holders of the shorter-term ‘Tet’ notes, which were due on Nov. 11, who object to the proposed debt agreement. They say the company isn’t insolvent and can pay its debts. Holders of other series of Africa-Israel bonds have said they may also split from the majority of creditors that approve the deal, with the aim of getting preference in any accord.
Leviev stared at Tel Aviv District Court Judge Varda Alshech on Dec. 2 as she postponed a decision on whether to allow a vote to approve the debt deal. Under the plan, Leviev would remain as chairman of a smaller and less leveraged Africa- Israel, with the debt dropping to 4.5 billion shekels from 7.5 billion shekels, according to an internal document of Psagot Investment House Ltd., Africa-Israel’s largest bondholder.
Leviev was the focus of a recent documentary broadcast by Israel’s Channel 10, which criticized Africa-Israel for wasting the public’s savings on frozen projects in Russia. People close to Leviev say he feels that he has been targeted unfairly by the media.
Boymelgreen, Leviev’s former New York partner, said that if the opportunity came up to work with him again, he would.
“I believe things can turn for him,” Boymelgreen said. “The wheel is always turning and you just have to hold on to the wheel.”