TIDMMLD
RNS Number : 3684H
Mirland Development Corporation PLC
17 August 2016
17 August 2016
MIRLAND DEVELOPMENT CORPORATION PLC
("MirLand" or the "Company")
UNAUDITED INTERIM CONSOLIDATED REPORT FOR THE
SIX MONTHSED 30 JUNE 2016
RESILIENT TRADING PERFORMANCE
MirLand, one of the leading international residential and
commercial property developers in Russia, announces its results for
the six months ended 30 June 2016.
Financial Highlights:
-- Net operating income ("NOI") from the investment portfolio
down to US$9.8 million (30 June 2015: US$13.5 million), mainly due
to depreciation in the Russian Rouble average rate against the US
Dollar and due to negative movement in the Russian real estate
market;
-- Gross profit of US$4.6 million (30 June 2015: US$12.8 million);
-- EBITDA of US$5.8 million (30 June 2015: US$7.2 million);
-- Loss of US$21.1 million (30 June 2015: loss of US$66.2
million) due to the ongoing impact of adverse conditions in the
Russian economy, which resulted in the negative fair value
adjustment of investment properties of approximately US$33.8
million, mainly due to the appreciation of the Russian Rouble
against the US Dollar as of 30 June 2016 and a decrease in
projected NOI;
-- Total assets amounted to US$620.8 million, of which 89% are
property and land assets (31 December 2015: US$577.8 million);
-- Total negative equity of US$29.4 million (31 December 2015: negative US$19.3 million);
-- Net leverage stands at 78.5% of total assets (31 December 2015: 82.3%);
Operational Highlights
Residential:
Triumph Park, St. Petersburg
Sales rates continue to remain high with prices in Russian
Rouble of later phases increasing ahead of inflation:
-- Phase III: Sales momentum continued with an additional 229
sales since 1 January 2016. In total 1,285 apartments out of 1,346
have been pre-sold, totalling circa 95% of the scheme and
representing sales of approximately US$90.5 million; delivery is
scheduled to commence in September 2016.
-- Phase IV: Sales momentum continues with an additional 217
sales since 1 January 2016. In total 679 apartments out of 1,244
have been pre-sold, totalling circa 55% of the scheme and
representing sales of approximately US$46.6 million;
Western Residence, Perkhushkovo, Moscow
-- Sales of a further eight houses at our Western Residence
development in Perkhushkovo, Moscow, have completed since 1 January
2016, taking the total number of units sold to 61 of the 77 houses
in the scheme.
Retail:
-- Satisfactory performance achieved despite pressures on rents
and occupancy rates in addition to further depreciation of the
average rate of the Russian Rouble against the US Dollar during the
first half, with half year NOI of US$5.9 million from the
Vernissage Mall and Triumph Mall compared to US$7.4 million last
year;
-- Occupancy increased to approximately 98% (30 June 2015: 90%);
Offices:
-- Occupancy rates slightly decreased at the MirLand Business
Centre and stand at 71%. NOI has reduced to US$3.9 million in the
first half of 2016.
Saydam Salaheddin, Chairman, commented:
"Whilst the market is still vulnerable to political and economic
headwinds, the last few months have been characterised by less
volatility and a greater stabilisation of the currency, which has
fed into investor confidence illustrated by an uptick in
acquisition activity in Moscow.
"Alongside this, MirLand has made substantial progress in
renegotiating its banking facilities and restructuring its bonds,
following a very challenging period. We are pleased with what has
been achieved to date, which reflect further steps towards getting
the Company onto a firmer financial footing. Whilst still very
early days, and recognising that a number of factors remain outside
of the Company's control, I look to the future with cautious
optimism."
For further information, please contact:
MirLand Development Corporation plc
Roman Rozental, CEO
roman@mirland-development.com +7 495 787 4962
Yevgeny Steklov, CFO +7 499 130 31 09
yevgeny@mirland-development.com +7 903 628 24 50
FTI Consulting
Dido Laurimore /Ellie Sweeney /Tom
Gough
dido.laurimore@fticonsulting.com
ellie.sweeney@fticonsulting.com
tom.gough@fticonsulting.com +44 20 3727 1000
Investec Bank plc
Jeremy Ellis / David Anderson +44 20 7597 4000
MirLand's progress during the first half year of 2016 reflects
our core strategy to:
-- Maximize returns from our existing assets;
-- Successfully complete projects currently under construction; and
-- To finalize the loan restructuring in Russia and to finalize
the bond settlement with the bondholders.
FINANCIAL REVIEW
Balance Sheet
Our balance sheet remains resilient with total assets as at 30
June 2016 of US$620.8 million (31 December 2015: US$577.8 million).
Total negative equity stood at US$29.4 million (31 December 2015:
negative US$19.3 million) and net cash was US$15.9 million.
MirLand's assets are externally valued half-yearly on 30 June
and 31 December by Cushman & Wakefield. Based on the 30 June
2016 valuation, investment properties and investment properties
under construction increased in value to US$280.2 million as at 30
June 2016 (31 December 2015: US$279.2), mainly due to the
appreciation of the Russian Rouble (compared to 31 December, 2015)
against the US Dollar. In carrying out the valuations, no change
was made to the discount and capitalisation rates by Cushman &
Wakefield.
Inventories of buildings for sale increased from US$257.3
million as at 31 December 2015 to US$273.6 million (30 June 2016)
mainly due to the appreciation of the Russian Rouble (compared to
31 December 2015) against the US Dollar and continued construction
of phases III and IV of Triumph Park.
Equity and Liabilities
Total negative equity as at 30 June 2016 was US$29.4 million,
including minority rights. This represents a decrease on the
US$19.3 million reported at 31 December 2015 and was mainly caused
by devaluation of the Russian Rouble against the US Dollar and the
negative revaluation of the Company's properties.
Net Financial liabilities as at 30 June 2015 were US$487.1
million in comparison to US$466.5 million at 31 December 2015. As
at 30 June 2016, net financial liabilities comprised 78.5% of
MirLand's total assets.
Income Statement
Total income (income from the sale of inventories, revenues from
rent and management fees) decreased 74% to US$17.3 million (H1
2014: US$66.2 million) primarily due to a decrease in income from
the sale of residential units in Triumph Park due to the fact that
delivery of phases I and II were finished during 2015 and delivery
of phase III is yet to commence.
In accordance with IAS 40, the Company has revalued its
investment properties and investment properties under construction
for the financial period ending 30 June 2016 and has recognised the
resulting movement in valuation through its income statement as
fair value adjustments. The fair value negative adjustment during
the period amounted to US$33.8 million (H1 2015: US$60.7 million)
mainly due to the appreciation of the Russian Rouble against the US
Dollar as of June 30 2016, which resulted in the negative fair
value adjustment of investment properties of approximately US$34.8.
There was also a positive fair value adjustment of investment
properties of US$1 million.
The cost of maintenance and management of the Company's
investment portfolio decreased from US$6.9 million in H1 2015 to
US$4.7 million in H1 2016. This was due to the additional
efficiency measures implemented by the Company, mainly in the
office segment and the depreciation of the average rate of Russian
Rouble against the US Dollar.
The Company's gross profit for the period decreased to US$4.6
million compared to US$15.7 million in the same period in 2015.
General and administrative expenses for the period decreased to
US$5 million in comparison to US$5.4 million in the same period in
2015, mainly due to efficiency measures implemented by the
Company.
Net financing costs for the period amounted to US$ (19.4)
million in comparison to US$ (16.7) million in the same period of
2015. Foreign exchange differences resulted in a gain of US$30.8
million due to the appreciation of the Russian Rouble against the
US Dollar of approximately 12%, compared to US$ (2.9) million in H1
2015.
A loss of US$21.1 million was recorded by the Company compared
to a loss of US$66.8 million in H1 2015.
Net Asset Value
The Company's adjusted negative net asset value as at 30 June
2016 decreased 14.5% to US$35.6 million, compared to US$31 million
as at December 2015. As of 30 June 2016, the portfolio was valued
at US$413 million, of which MirLand's share is US$391.8 million
(December 2014: US$394.9 million).
The valuation of each asset in MirLand's real estate portfolio
as at 30 June 2016 is set out in the following table:
Ref. City Property Name Portfolio Percentage MirLand Market Total Projected Net
and Address Market Value Owned by Value as of sqm of Leasable /
as of 30th of MirLand 30th Land Saleable Area
June 2016 of June 2016 in sqm upon
(Rounded) (Rounded) Completion
(excl.
Parking)
----- --------------- ----------------- --------------- --------------- --------------- -------- --------------
001 Moscow Hydromashservice $32,500,000 100% $32,500,000 12,237 16,696
----- --------------- ----------------- --------------- --------------- --------------- -------- --------------
002 Moscow MAG $37,100,000 100% $37,100,000 21,940 18,535
----- --------------- ----------------- --------------- --------------- --------------- -------- --------------
Western
Residence,
003 Moscow Region Perkhushkovo $16,500,000 100% $16,500,000 225,300 44,063
----- --------------- ----------------- --------------- --------------- --------------- -------- --------------
004 Saratov Triumph Mall $74,200,000 100% $74,200,000 22,000 27,241
----- --------------- ----------------- --------------- --------------- --------------- -------- --------------
Saint Triumph Park,
006 Petersburg Residential $116,300,000 100% $116,300,000 326,651 411,413
----- --------------- ----------------- --------------- --------------- --------------- -------- --------------
Saint Triumph Park,
007 Petersburg Trade Center $8,100,000 100% $8,100,000 81,663 N/A
----- --------------- ----------------- --------------- --------------- --------------- -------- --------------
008 Yaroslavl Vernissage Mall $47,000,000 100% $47,000,000 120,000 34,092
----- --------------- ----------------- --------------- --------------- --------------- -------- --------------
009 Yaroslavl Phase II $2,100,000 100% $2,100,000 160,000 40,000
----- --------------- ----------------- --------------- --------------- --------------- -------- --------------
010 Moscow Tamiz Building $23,900,000 100% $23,900,000 4,500 11,737
----- --------------- ----------------- --------------- --------------- --------------- -------- --------------
Century
011 Moscow Buildings $47,800,000 51%/61% $26,600,000 5,800 20,904
----- --------------- ----------------- --------------- --------------- --------------- -------- --------------
012 Kazan Triumph House $3,400,000 100% $3,400,000 22,000 16,783
----- --------------- ----------------- --------------- --------------- --------------- -------- --------------
Logistics
013 Saratov Complex $4,100,000 100% $4,100,000 260,000 N/A
----- --------------- ----------------- --------------- --------------- --------------- -------- --------------
Total $413,000,000 $391,800,000
----------------------------------------- --------------- --------------- --------------- -------- --------------
The full valuation report is published on the Company's website
(www.mirland-development.com).
We strongly believe in the quality of the assets owned by the
Company and that the portfolio will deliver an attractive yield to
our investors over the long term as the market improves.
FINANCING
The challenging economic environment has continued to have a
substantial impact on the valuation of the Company's real estate
portfolio. This saw the value marked down by approximately 33%
during 2015, though a slight improvement in the Company's real
estate portfolio resulted in a net leverage decrease to 78.5% of
total assets as at 30 June 2016 from 82.3% as at 31 December 2015.
Total net borrowings amounted to US$487.1 million (31 December
2015: US$475.7 million).
Bond Restructuring
During the Period the Company made further progress towards
delivering the new restructuring plan (the "Settlement") and
following discussions with the trustees of the Series A-F
bondholders (the "Bondholders"), the Company announced on 11 August
2016 that the Settlement was approved by a majority of 96% of the
par value of the bonds (Series A-F).
Given the required majority, pursuant to Cypriot Companies Law*,
the Bondholders (Series A-F) have approved the Settlement with the
Company.
The main principles of the Settlement are as follows:
1) Conversion of the full debt owed to the Bondholders into the following components:
(a) approximately 80.5% of the Company's enlarged share capital
(with the possibility of dilution by the issue of the Management
Options (as defined below);
(b) Issuance of a new bond series having a principal amount of
USD$45 million (the "New Series").
2) The Controlling Companies agree to subscribe for up to
US$14.1 million of new equity in the Company ("Equity
Subscription") (including the capitalisation of the loan of US$6.1
million previously provided to the Company). The Equity
Subscription is subject to clawback in respect of valid
applications received from shareholders other than the Controlling
Companies in respect of an open offer expected to be made by the
Company.
3) Upon completion of the Settlement, the Company will issue to
the relevant management options, representing, if exercised, 9% of
the issued share capital of the Company on a fully diluted basis
subject to certain vesting criteria (the "Management Options"). The
Management Options' exercise price reflects the current valuation
of the Company.
4) The primary terms that will apply to the New Series are as follows:
(a) the principal will be repaid through three (3) equal
payments on 31 December of 2021, 2022 and 2023;
(b) the principal will bear an annual fixed interest rate of 1%
which will accrue until December 2017 (PIK interest), without
compound interest, and will start to be paid from December 2017;
subsequently, interest will be paid to the Bondholders in an annual
manner on 31 December of each calendar year;
(c) the Company will have the right to repay the New Series
amount at any time and at its sole discretion without incurring any
fees or penalty;
(d) the Company will not be obligated to any restriction and /or
financial covenants and will be free from any limitations on the
taking of loans and/or financial undertakings and granting any
securities to guarantee such; and
(e) the right to demand the immediate repayment of the New
Series will only be granted to the bondholders in the circumstances
listed in Section 35I1 of the Israel Securities Law, 5728-1968 in
accordance with and subject to the provisions of the new trust deed
that will be adopted.
The aforesaid terms of the Settlement were approved by the board
of directors of the Company and the Controlling Companies.
The completion of the Settlement is subject to various
conditions, including the approval of certain resolutions by the
Company's shareholders in a general meeting. There is no certainty
that the conditions precedent set in the Settlement documents will
be completed by the set deadlines, nor that that the Settlement
will be completed.
The Company will now act to convene a meeting of the creditors
and an extraordinary general meeting of the shareholders of the
Company ("EGM") to consider and, if thought fit, to approve the
Settlement Plan pursuant to a ruling of the Cypriot Court on 4 July
2016.
The Company will make further announcements in relation to the
Settlement in due course.
Notes:
*A majority consisting of more than 50% (of the par value) of
the creditors present and voting at the meeting, either personally
or by a representative.
Debt Settlement with Sberbank
Further to the announcement on 22 June 2016, the Company
continues to progress with its Russian domestic banks towards
completion of the agreements that were entered into. Full details
on the current status are provided in Note 1 to the accounts. The
Company will provide further announcements in due course.
OPERATIONAL UPDATE
Good progress continues to be achieved in the pre-sale, build
and delivery of Triumph Park in St. Petersburg, the Company's
BREEAM certified sustainable residential project. Sales have
continued to be strong in Phase III of the scheme, with 1,285 (95%
of the scheme) apartments now pre-sold. The Company is continuing
to achieve sale prices in Russian Rouble in these later phases
ahead of the rate of inflation, underpinning the strong levels of
profitability for the project. Sales have continued to be strong in
Phase IV of the scheme, with 679 (55% of the scheme) apartments now
pre-sold.
The Western Residence residential development at Perkhushkovo,
Moscow, has also maintained momentum with eight further houses sold
since the beginning of 2016. This now takes the number sold to 61
of a total of 77 houses in the scheme.
Occupancy at our Vernissage Mall and Triumph Mall assets
slightly increased to approximately 98%, and footfall remained high
at both.
Occupancy at the MirLand Business Centre decreased in line with
market conditions to approximately 71% of the total rentable
area.
On August 16, 2016 the ratings agency, Standard & Poor's
Maalot S&P Global. notified the Company that no changes were
made to the Company's D rating.
On account of the challenging economic environment, the Company
has been providing certain discounts and limitation agreements on
the exchange rate to its retail and office tenants, which led to an
additional substantial decrease in its NOI in the first half of
2016.
BOARD CHANGES
During the period the Company announced the appointment of
Constantinos Pantelides as an independent Non executive Director of
the Company, who also sits on the Audit Committee. The Company
previously announced that Nigel Wright, the Chairman had stepped
down from his role and was replaced by Saydam Salaheddin. At the
same time Eliezer Fishman also stepped down from the Board.
MARKET UPDATE
Russia's economy contracted by 1.6% in 2Q16 (1.2% in 1Q16).
According to the World Bank, it is estimated that the Russian
economy will contract by 1.9% over the course of 2016.
Inflation in 2Q16 was at 7.5% (end of period), almost half of
the high figure reported in the same period in the previous year
(15.3%). Annual inflation for 2016 is forecast by the Ministry of
Economics to be 7.6%.
Currency fluctuated between 60-82.45 Russian Rouble to US
Dollar, from the beginning of the year, reaching an all-time high
of 82.45 in January 2016. It was at 64.25 on 30 June 2016 and as of
the date of publication of the announcement, there was no material
change.
In recent months, the exchange rate dynamics appear to be linked
less to oil price movements. Russia's Urals oil brand sold for an
average of US$39.61 per barrel between January and June 2016, down
31% from an average of US$56.99 per barrel during the same period
last year.
On 10 June 2016 the Central Bank of Russia announced its
decision to cut its interest rate by 50 basis points to 10.50%.
This is the first time that the Central Bank has lowered the
interest rate in nearly a year and the recent cut has brought it to
the level it was at before the emergency rate hike to 17.00% in
December 2014.
The net capital outflow from Russia fell to US$10.5 billion in
1H16 from US$54 billion in the same period a year earlier,
according to the Central Bank of Russia. The Russian Economic
Development Ministry estimates that the net capital outflow will
amount to around US$25 billion in 2016, a slowdown from the
US$56.9bn in 2015.
The unemployment rate was 5.8% in June 2016, an increase from
5.4% in June 2015.
Real Estate market
Prime yields in 2Q2016 were 10.5% for offices, 11% for prime
retail, and 12.75% for warehouses, which are unchanged from the
previous quarter.
The total volume of investment in 1H16 in commercial real estate
was US$2.5 billion, compared to US$1.3 billion in 1H15. With a
volatile global and domestic economic environment, the forecast for
2016 is US$3.5 billion. The share of foreign investments was only
5% in 1H16 (US$120 million), mostly invested in warehouse
properties.
Offices
The total volume of investment in the office segment was US$1.67
billion, approximately 67% of total investments.
Rental rates showed slight improvement in 1H16, at RUB32,000/sqm
(US$502) for Class A offices and RUB15,000/sqm (US$213) for Class B
offices, net of OPEX and VAT.
The average vacancy rate has increased to 17.9%: 31.4% in Class
A offices (2015F - 33%), and 14.7% Class B offices (2015F - 16%).
The net absorption is negative and signifies the lack of demand for
new offices.
The 2Q16 overall vacancy rate in Moscow was high 18.7% (27.7% in
Class A and 15.9% in Class B).
1H16 new construction by classes amounted to 30,000 sqm in Class
A offices and 145,000 sqm in Class B classes. By the end of 2016,
annual new construction volume is expected to reach 300,000 sqm
(equal spread between Class A and Class B).
1H16 net absorption showed a positive trend and totalled in
215,000 sqm.
Retail
The first half of 2016 was characterised by a record low volume
invested in retail - US$43 million (compared to US$196 million in
the same period in 2015), out of $2.5 billion total investment
volume.
In 1H16 nine new quality shopping centres were opened in Russia
(only one of which was delivered in Moscow) compared to 13 openings
in 1H15 (five of which were delivered in Moscow).
In 2Q16 the average vacancy rate in prime Moscow shopping malls
was 2.5%, slightly higher than 2.2% in 2Q15. The 2016 forecast is
3%.
The total overall vacancy rate for Moscow quality retail stock
in 2Q16 was 12%, compared to 9.2% in 1Q16 at 8%.
The prime rental rate indicator stood at RUB145,000/sqm, which
was the same as 1Q16. The majority of lease agreements are still
nominated in Russian Rouble. Rental payment as a percentage of
turnover and fixed rental rate remained the most popular payment
scheme. Rental conditions can change depending on the stage of
development and level of occupancy.
Residential
The mortgage lending market is increasing, with approximately
RUB554 billion (approximately US$8.63bn) of mortgages granted
between January and May 2016, 40% higher than the same period in
2015.The average lending rate at the beginning of June 2016 was 13%
(lower than 13.5% in May 2015 ).
In 2Q16, 42 new projects were delivered in St. Petersburg to the
market (6% less than 1Q16) with a total of 337,000 sqm (9.6% less
than 2Q15), similar to the same period the previous year (373,000
sqm). 92% of delivery (in '000 units) to the market was attributed
to the mass-market segment. As of 2Q16, there are 452 projects
offered in St. Petersburg (1% lower than 1Q16)
Industrial
Total investment volume in the segment was US$40 million in
1H16, out of $2.5 billion of total investment volume.
Approximately 286,000 sqm of warehouse space was delivered in
1H16 (392,000 sqm in 1H15) in Moscow and the Moscow region. Around
500,000 sqm of industrial space is expected to be delivered by the
end of 2016 (15% higher than annual completions in 2015).
Take-up in 2Q16 amounted to 157,000 sqm, compared to 188,000 sqm
in 2Q15.
The 2Q16 vacancy rate was 10% in Class A and of 8% in Class B.
90% of the vacant space was marketed with Russian Rouble lease
rates. The average lease length is less than five years.
Saydam Salaheddin Roman Rozental
Chairman Chief Executive
17 August 2016 17 August 2016
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
30 June 31 December
----------------
2016 2015 2015
------- ------- -----------
Unaudited Audited
---------------- -----------
U.S. dollars in thousands
-----------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 4,638 17,883 5,097
Restricted cash and short term investments 11,259 11,159 11,159
Trade receivables 2,510 3,749 2,274
Accounts receivables 9,681 6,971 7,885
VAT receivable 3,171 4,742 3,321
Inventories of buildings for sale 202,264 167,538 171,240
------- ------- -----------
233,523 212,042 200,976
------- ------- -----------
NON-CURRENT ASSETS:
Investment properties 262,500 329,500 260,200
Investment properties under construction 17,700 34,700 19,000
Inventories of buildings for sale 71,335 84,750 68,298
VAT receivable 379 373 290
Fixed assets, net 989 1,239 969
Other long term receivables 15,244 18,874 14,709
Prepaid expenses 457 509 455
Deferred taxes 18,655 12,863 12,944
------- ------- -----------
387,259 482,808 376,865
------- ------- -----------
TOTAL ASSETS 620,782 694,850 577,841
======= ======= ===========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
30 June 31 December
--------------------
2016 2015 2015
--------- --------- -----------
Unaudited Audited
-------------------- -----------
U.S. dollars in thousands
---------------------------------
EQUITY AND LIABILITIES
CURRENT LIABILITIES:
Long-term loans from banks which classified
for short-term 196,645 206,574 196,328
Current maturities of long-term credit
from banks 18,451 16,555 19,575
Current maturities of debentures 148,752 76,870 115,672
Credit from banks for financing of
inventory of buildings for sale 24,024 21,452 24,845
Long-term Debentures which classified
for short-term 115,108 174,064 135,523
Trade payables 7,372 10,416 6,361
Deposits from tenants 2,090 1,765 2,033
Advances from buyers 110,550 71,909 73,783
Other accounts payable 2,027 2,471 2,382
Loan from parent company 2,233 - -
--------- --------- -----------
627,252 582,076 576,502
--------- --------- -----------
NON-CURRENT LIABILITIES:
Other non-current liabilities 9,142 12,107 9,077
Deferred taxes 13,773 21,014 11,519
--------- --------- -----------
22,915 33,121 20,596
--------- --------- -----------
TOTAL LIABILITIES 650,167 615,197 597,098
--------- --------- -----------
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS
OF THE PARENT:
Issued capital 1,036 1,036 1,036
Share premium 359,803 359,803 359,803
Capital reserve for share-based payment
transactions 12,598 12,559 12,586
Capital reserve for transactions with
controlling shareholders 14,656 8,556 10,556
Foreign currency translation reserve (170,275) (170,433) (175,193)
Accumulated deficit (263,173) (152,855) (242,865)
--------- --------- -----------
TOTAL EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT (45,355) 58,666 (34,077)
Non-controlling interest 15,970 20,987 14,820
--------- --------- -----------
Total equity (29,385) 79,653 (19,257)
--------- --------- -----------
TOTAL EQUITY AND LIABILITIES 620,782 694,850 577,841
========= ========= ===========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Six months ended Year ended
30 June 31 December
------------------
2016 2015 2015
-------- -------- ------------
Unaudited Audited
------------------ ------------
U.S. dollars in thousands
(except earnings (loss) per
share data)
--------------------------------
Rental income from investment properties 13,546 17,805 32,271
Revenues from sale of residential units 2,472 46,894 51,206
Revenues from management fees 1,257 1,499 2,808
-------- -------- ------------
Total revenues 17,275 66,198 86,285
-------- -------- ------------
Cost of sales and maintenance of residential
units 3,210 43,534 47,265
Cost of maintenance and management 5,233 6,917 12,914
-------- -------- ------------
Gross profit before provision for impairment 8,832 15,747 26,106
Impairment of inventory 4,254 2,986 4,330
-------- -------- ------------
Gross profit 4,578 12,761 21,776
-------- -------- ------------
General and administrative expenses 5,050 5,412 12,578
Bond settlement expenses 402 1,444 2,276
Marketing expenses 765 2,954 4,300
Fair value adjustments of investment
properties and investment properties
under construction (33,754) (60,698) (56,152)
Other expense (earnings), net (379) 70 3,471
Operating income (loss) (35,014) (57,817) (57,001)
Finance income 602 1,101 271
Finance expenses (20,017) (17,777) (35,035)
Net foreign exchange differences 30,779 (2,943) (84,716)
-------- -------- ------------
Profit (loss) before taxes on income (23,650) (77,436) (176,481)
Taxes on income (tax benefit) (2,545) (11,239) (19,004)
-------- -------- ------------
Net income (loss) (21,105) (66,197) (157,477)
======== ======== ============
Attributable to:
Equity holders of the parent (20,308) (63,098) (153,108)
Non-controlling interests (797) (3,099) (4,369)
-------- -------- ------------
(21,105) (66,197) (157,477)
======== ======== ============
Basic and diluted net earnings (loss)
per share (US Dollars) attributable
to equity holders of the parent (0.2) (0.60) (1.48)
======== ======== ============
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
Six months ended Year ended
30 June 31 December
------------------
2016 2015 2015
-------- -------- ------------
Unaudited Audited
------------------ ------------
U.S. dollars in thousands
--------------------------------
Net Income (loss) (21,105) (66,197) (157,477)
-------- -------- ------------
Other comprehensive income (loss) (net
of tax effect):
Other comprehensive income to be reclassified
to profit or loss in subsequent periods:
Exchange differences on translation
of foreign operations 6,865 4,374 (5,283)
Total other comprehensive income (loss) 6,865 4,374 (5,283)
-------- -------- ------------
Total comprehensive income (loss) (14,240) (61,823) (162,760)
======== ======== ============
Attributable to:
Equity holders of the parent (15,390) (59,334) (154,104)
Non-controlling interest 1,150 (2,489) (8,656)
-------- -------- ------------
(14,240) 61,823 (162,760)
======== ======== ============
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY
Capital Total
reserve
for equity
Capital transactions Foreign attributable
reserve
for with currency to equity Non-
Issued Share share-based controlling translation Accumulated holders of controlling Total
capital premium payments shareholders reserve deficit the parent interest equity
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- --------
Unaudited
U.S. dollars in thousands
At 1 January
2016 1,036 359,803 12,586 10,556 (175,193) (242,865) (34,077) 14,820 (19,257)
Loss - - - - - (20,308) (20,308) (797) (21,105)
Other
comprehensive
profit
(loss) - - - - 4,918 - 4,918 1,947 6,865
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- --------
Total
comprehensive
income
(loss) - - - - 4,918 (20,308) (15,390) 1,150 (14,240)
Transaction
with
controlling
shareholders - - - 4,100 - - 4,100 - 4,100
Share-based
payments (Note
19) - - 12 - - - 12 - 12
------------ ----------- --------
At 30 June 30,
2016 1,036 359,803 12,598 14,656 (170,275) (263,173) (45,355) 15,970 (29,385)
======= ======= =========== ============ =========== =========== ============ =========== ========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY
Capital Total
reserve
for equity
Capital transactions Foreign attributable
reserve
for with currency to equity Non-
Issued Share share-based controlling translation Accumulated holders of controlling Total
capital premium payments shareholders reserve deficit the parent interest equity
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- --------
U.S. dollars in thousands
At 1 January
2015 1,036 359,803 12,530 8,556 (174,197) (89,757) 117,971 23,476 141,447
Net profit
(loss) for the
year - - - - - (63,098) (63,098) (3,099) (66,197)
Other
comprehensive
loss - - - - 3,764 - 3,764 610 4,374
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- --------
Total
comprehensive
income
(loss) - - - - 3,764 (63,098) (59,334) (2,489) (61,823)
Share-based
payments (Note
19) - - 29 - - - 29 - 29
------------ ----------- --------
At 30 June 2015
(unaudited) 1,036 359,803 12,559 8,556 (170,433) (152,855) 58,666 20,987 79,653
======= ======= =========== ============ =========== =========== ============ =========== ========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY
Capital Total
reserve
for equity
Capital transactions Foreign attributable
reserve
for with currency to equity Non-
Issued Share share-based controlling translation Accumulated holders of controlling Total
capital premium payments shareholders reserve deficit the parent interest equity
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- ---------
Audited
U.S. dollars in thousands
At 1 January
2015 1,036 359,803 12,530 8,556 (174,197) (89,757) 117,971 23,476 141,447
Loss - - - - - (153,108) (153,108) (4,369) (157,477)
Other
comprehensive
profit
(loss) - - - - (996) - (996) (4,287) (5,283)
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- ---------
Total
comprehensive
income
(loss) - - - - (996) (153,108) (154,104) (8,656) (162,760)
Transaction
with
controlling
shareholders - - - 2,000 - - 2,000 - 2,000
Share-based
payments (Note
19) - - 56 - - 56 - 56
------------ ----------- ---------
At 31 December
2015 1,036 359,803 12,586 10,556 (175,193) (242,865) (34,077) 14,820 (19,257)
======= ======= =========== ============ =========== =========== ============ =========== =========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended Year ended
30 June 31 December
------------------
2016 2015 2015
-------- -------- ------------
Unaudited Audited
------------------ ------------
U.S. dollars in thousands
--------------------------------
Cash flows from operating activities:
Net profit (21,105) (66,197) (157,477)
-------- -------- ------------
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Adjustments to the profit or loss items:
Deferred taxes, net (2,757) (11,851) (20,367)
Depreciation and amortization 103 82 156
Finance expenses (income), net (11,365) 19,619 119,480
Share-based payment 12 29 56
Fair value adjustment of investment
properties and investment properties
under construction 33,754 60,698 55,152
Loss from sale of investment property - - 1,000
19,747 68,577 155,477
-------- -------- ------------
Working Capital adjustments:
Impairment of inventory 4,254 - 4,330
Impairment of financial assets - - 3,200
Decrease (increase) in trade receivables (1,105) (2,088) (599)
Increase in VAT receivable and others (8) (1,200) (430)
Decrease (increase) in inventories
of buildings for sale (11,811) 13,296 (20,789)
Increase (decrease) in trade payables (879) (147) 1,603
Increase (decrease) in other accounts
payable 24,402 (18,035) 3,997
-------- -------- ------------
14,853 (8,174) (8,688)
-------- -------- ------------
Interest paid (8,164) (10,273) (21,301)
Interest received 38 173 217
Taxes paid (547) (935) (1,229)
(8,673) (11,035) (22,313)
-------- -------- ------------
Net cash flows generated from (used
in) operating activities 4,822 (16,829) (33,001)
-------- -------- ------------
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended Year ended
30 June 31 December
------------------
2016 2015 2015
-------- -------- ------------
Unaudited Audited
------------------ ------------
U.S. dollars in thousands
--------------------------------
Cash flows from investing activities:
Additions to investment properties (97) - (1,778)
Additions to investment properties
under construction (620) (1,642) (2,852)
Proceeds from sale if investment property - - 3,170
Net cash flows used in investing activities (717) (1,642) (1,460)
-------- -------- ------------
Cash flows from financing activities:
Receipt of loans from banks and others,
net from origination costs 9,447 21,430 42,028
Repayment of loans from banks and others (18,534) (14,175) (33,966)
Receipt of funds from controlling shareholders 4,100 - 2,038
Net cash flows generated from financing
activities (4,987) 7,255 10,100
-------- -------- ------------
Exchange differences on balances of
cash and cash equivalents 523 (388) (29)
-------- -------- ------------
Increase (Decrease) in cash and cash
equivalents (359) (11,604) (24,390)
Cash and cash equivalents at the beginning
of the period 16,256 40,646 40,646
-------- -------- ------------
Cash and cash equivalents at the end
of the period 15,897 29,042 16,256
======== ======== ============
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL
a. These interim consolidated financial statements have been
prepared in a condensed format as of 30 June 2016 and for the
six-month period then ended ("Interim Condensed Consolidated
Financial Statements"). These Interim Condensed Consolidated
Financial Statements should be read in conjunction with the
Company's annual financial statements and accompanying notes as of
31 December 2015.
b. Further to the explanations stated in note 1b of the annual
financial statements as of 31 December 2015 of the Company
referring to the deterioration of the market condition in Russia,
the negative trend continued also in 2016. The Russian economy
continues to demonstrate a negative GDP growth, without any signs
that may suggest a quick recovery of the Russian market.
Notwithstanding that until June 30, 2016, the rate of the ruble
increased by approx. 12% to a level of 64.3 ruble to dollar, and
although the Central Bank of Russia later on reduced the
inter-banking interest by 0.5% to 10.5%. there was no material
changes in the Russian Ruble rate against the US Dollar r after the
balance sheet date.
c. The updated bond restructuring plan and its approval in the
preliminary general meetings (the "Preliminary Meetings") of the
Bondholders
1. On July 19, 2016 and on August 1, 2016, the Company published
the debt restructuring plan of the Company with its bondholders
(Series A-F) ("Bondholders") including, inter alia, the new trust
deed and the proposed new articles of association ("Updated
Restructuring Plan");
At the date of the execution of the Updated Restructuring Plan
("Execution Date"), following increase of the registered share
capital of the Company (from USD 1,350,000 divided into 135 million
shares with a nominal value of USD 0.01 per share to USD17,000,000
divided into 1,700,000,000 shares with a nominal value of USD 0.01
per share), as well as a share issuance to the shareholders,
including the following actions, the outstanding debt of the
Company owed to the Bondholders as of the Execution Date will be
converted into shares detailed in sections (I)-(IV) below.
Additionally, at the Execution Date, all existing Bonds will be
delisted and become null and void, in such way that they will not
grant their existing holders any rights whatsoever (including for
payments that were due to be paid prior to the Execution Date but
were not paid). Similarly, together with the voiding of the
existing Bonds as above, the validity of the existing trust deeds
and all rights granted by them to any party will expire.
I. Share issuance to the existing Bondholders
The Company will issue shares of the Company, which will
constitute 80.5% of the issued and outstanding share-capital of the
Company (73.3% on a fully diluted basis including the Management
Options as set by the Updated Restructuring Plan). Immediately
after this issuance and that of all of the securities under the
Updated Restructuring Plan (including the Management Options); the
issued shares will be listed for trade, and will have equal to the
existing shares of the Company
Payment of the nominal value of the issued shares will be
carried out in consideration for the existing Bondholders of the
existing debt for an amount equal to that required to be paid by
law and/or by the articles of the TASE in exchange for the nominal
value.
II. Issuance of new Bonds
At the Execution Date, the Company will issue Bonds (Series G)
to the existing Bondholders of the Company (the "New Bond Series"
or "Bonds (Series G)"), of which their principal will be a total
amount, paid in New Israeli Shekels of USD 45 million dollars, set
at the representative rate of the Shekel to the Dollar as set in
the Updated Restructuring Plan, and will be repaid in three (3)
equal payments, each on the 11(th) of December of 2021, 2022 and
2023. The principal of the Bonds (Series G) will bear an annual
interest rate of 1%, which will accrue until December 2017 (PIK
Interest), without any compouned interest, and will be paid at this
date, subsequent to which, it shall be paid to the Bondholders
(Series G) in an annual payment, on the 11(th) of December of each
calendar year. Principal and interest of the Bonds (Series G) will
not be linked to any index or index basis (including currency)
whatsoever. Bonds (Series G) will not be secured by any guarantees
or pledges whatsoever.
III. Financing by the Controlling Companies
The Company will offer to all of its shareholders (either as a
single offer to all shareholders or in separate offers, public
and/or private, based on the discretion of the Company and in
accordance with the terms of all applicable laws) to purchase
Company shares at the price of the share issuance to the main
shareholders. The Company is eligible to determine that the
consideration for the shares issued in the issuances to the
shareholders that will be paid to it at the Execution Date.
To the extent that in the course of the issuance to the
shareholders, the Company raises an amount less than the amount
raised by the shares issued to the shareholders, then at the
Execution Date, the Company will issue additional Company shares to
the main shareholder companies of the Company in consideration for
the amount of the issuance differential (at the price per share as
set in the issuance to the shareholders.
In the course of the Updated Restructuring Plan, the main
shareholder companies will finance an amount of USD 14.1 million to
the Company (of which USD 6.1 million has already been provided).
In exchange for the said capital inflow, the controlling
shareholder companies will be entitled to approximately 19.5% of
the share capital of the Company.
IV. Issuance of Securities to the Company Management
At the Execution Date, call option notes (non-tradable) for the
purchase of Company shares, will be issued to the management of the
Company in
accordance with an allocation set by the Company, for no
consideration, which will constitute, presuming their exercise, up
to nine percent (9%) of the issued and paid share capital of the
Company, immediately after their issuance and the issuance of all
of the shares under the Updated Restructuring Plan (including the
issuances of the issued shares) (the "Management Options").
The terms of securities options will be determined by the Board
and shall include, inter alia, the following conditions: (a) the
vesting date; (B) the exercise price of each option, which is set
to USD 1.5 cents per share, subject to adjustments; (C) the
exercise period; (D) the rights of offerees for adjustments when
granting the options as customary to grant stock options to
officers of public companies in Israel; (E) the procedures for the
exercise and expiration of options at the time of dismissal or
resignation of the offeree.
V. Amending the Company's Articles; Company Board
At the Execution Date, notice for a general meeting of the
shareholders of the Company will be given by which the Company
shareholders, after the completion of the issuances in accordance
with the provisions of this plan will participate, and have on its
agenda the approval of the change of the present articles with the
new articles (as attached to the Updated Restructuring Plan) and
the appointment of two external directors and an independent
director.
VI. Conditions Precedent
(1) Approval of the authorized organs of the Company in
accordance with Cypriot Companies Law, to the extent required under
Cypriot Law;
(2) Approval of the Israel Securities Authority and the TASE for
the amendment shelf prospectus of the Company;
(3) Approval of the TASE to list all of the Company's shares for
trade, including approval for the issuance and listing for trade of
the securities which will be issued under the Updated Restructuring
Plan as detailed in sections I-IV above;
(4) Approval of the general meeting of the existing Bondholders
for the execution of the Updated Restructuring Plan in accordance
with Cypriot law;
(5) RApproval of the authorized Cypriot Court of the Updated
Restructuring Plan;
(6) Approval of the general meeting of the shareholders of the
Company to the Updated Restructuring Plan, in accordance with
Cypriot Law;
(7) Approval of the Tax Authority to the Updated Restructuring
Plan which will be published prior to the date of the Preliminary
Meetings of the existing Bondholders - fulfilled;
(8) Increasing the registered share capital of the Company as
detailed in section C.1 above;
(9) By 11 August 2016, the results of the Preliminary Meetings
of the Bondholders (Series A-F) will be received, by which, in
accordance with the results of the voting at the Preliminary
Meetings, the required majority necessary for the approval of the
Updated Restructuring Plan at the creditors meeting in Cyprus, in
accordance with the cast of voting mechanism as approved by the
Tel-Aviv District Court in its decision on 3 August 2015 in the
motion for the granting of instructions submitted by the trustees
on 22 July 2015 (court reference: 46418-07-15);
(10) Agreements between Sberbank of Russia and four subsidies of
the Company will be signed, completed and taken effect, with
regards to loans provided by the bank to them totaling
approximately USD 160 million and which will constitute an
amendment to the existing loan documents between the bank and the
companies;
(11) The absence of any judicial order preventing the execution
of the Updated Restructuring Plan;
(12) The publication of a letter of undertaking by the main
shareholder companies of the Company on MAGNA prior to the date of
the Preliminary Meetings of the existing Bondholders -
fulfilled;
If the conditions precedent are not fulfilled (other than the
conditions for the approval of the Preliminary Meetings - which
have been fulfilled as of date) by 30 November 2016 (or any other
date agreed upon by the parties), the Updated Restructuring Plan
may become null and void by the Company, the trustees or the main
shareholder companies by way of written notice to the other
parties.
2. In the course of the Preliminary Meetings of the Bondholders,
held separately for each bond series on 9 August 2016, it was
resolved by the Bondholders (Series C-F) to approve of the Updated
Restructuring Plan (including the new trust deed) with a majority
comprising of more than 75% of the nominal value of each series;
while at the Preliminary Meetings of the Bondholders (Series A-B),
the threshold of more than 75% of the nominal value of each series
required for its approval was not achieved.
In the course of the Preliminary Meetings of the Bondholders
(Series A) 62.2% of the participants voted in favour and 37.8 voted
against the Updated Restructuring Plan; in the course of the
Preliminary Meetings of the Bondholders (Series B) 51.97% of the
participants voted in favour and 48.03% voted against the Updated R
estructuring Plan.
3. In accordance with the ruling of the Tel-Aviv District Court
of 3 August 2015, in a motion submitted by the trustees of the
Bondholders regarding the classification of the votes in the
Preliminary Meetings in Israel, the trustees for the Bond Series
(C-F) which approved of the Updated Restructuring Plan will vote in
favour of the Updated Restructuring Plan at the creditors meetings
scheduled to be held in Cyprus for the entire nominal value of each
of these series; whereas the trustees for each Series (A-B) which
did not approve of the Updated Restructuring Plan by way of the
necessary majority, will split the participating votes (for and
against) in accordance with the voting divide achieved at the
Preliminary Meetings of each of the Bond Series (A-B).
In light of the above, after examination of the outcome of the
Preliminary Meetings, the Updated Restructuring Plan was approved
by way of a majority of 96% of the nominal value of all of the Bond
Series (A-F). In considering the required majority necessary for
the approved of the Updated Restructuring Plan in Cyprus (a
majority of more than 50% (of the value of the debt) of the
creditors present and voting at the meeting, either directly or
through proxy or appointment), the necessary majority required for
the approval of the Updated Restructuring Plan in Cyprus was
achieved in accordance with the mechanism set in the motion for
granting instructions, and, in effect the Bondholders approved of
the Updated Restructuring Plan of the Company.
Every Bondholder, from all series has the opportunity to
exercise their right to separate themselves from the collective
vote of their series and to vote against the trustee of their
series in the course of the creditors meeting in Cyprus.
4. Within the framework of the funding agreements with the
lending banks in Russia, certain financial covenants were set,
which as of June 30, 2016 the Company fails to meet most of which,
among others, a requirement for a LTV ratio, a requirement for
minimum occupation rates and debt and interest coverage ratios. As
of the date of signature of the statements, the Company failed to
pay an amount of approx. USD 6.2 million to the funding bank within
a framework of four yielding projects of the Company.
In consequence of that stated above, in its financial
statements, as at June 30, 2016, the Company classifies loans from
banking corporations, in respect of which it fails to meet the
financial covenants, according to a total of USD196.6 million,
within the framework of its current liabilities.
On July 8, 2016 the Company received five agreements that were
signed by the 'Bank' (as defined below) with four subsidiaries of
the Company: Mashinostroenie & Hydravlika OJSC ("MAG"),
Investisionno Ipotechnaya Kompania LLC., ("IIK"), Hydromashservice
LLC. ("Hydro") and Inomotor LLC. ("Ino") (hereinafter jointly: the
"Subsidiaries") pertaining to the settlement of loans that were
placed in their favor by the Bank (the "Agreements") amounting as
of the date of this Report to a total of approx. USUSD 160 million
(the "Loans"). The Agreements constitute an amendment to the Loan
Agreements (as defined in the Agreements) with the Bank, committed
by the Subsidiaries, comprised of two stages (including certain
conditions precedent) whose principals are specified hereunder:
Stage A: The payment schedules with respect to the payment of
principal in three out of five of the loans, in which there was an
arrear in the payment of principal, were amended in such a manner
that the payments of principal in these loans were deferred to
August and September 2016. The arrears in the payments of
principal, as extended, will not constitute a breach of the Loan
Agreements with the Bank. In addition, the payments schedule in
reference of the loan which is not in arrears will be amended and
the payment of principal was deferred for payment to September 28,
2016. Upon the signature date of the Agreements, the annual
interest rate, which would apply to part of the loans, was slightly
decreased. In addition, it was determined that any early payment of
the loans shall not entail any fine, commission, compensation
and/or an additional payment due to such early payment.
Stage B: the payment schedules will be amended in such a manner
that on average, approximately 81% of the balance of the principal
of the loans will be paid during the first quarter of 2026, and its
balance shall be paid each and every quarter during the period
until that date. Moreover, there will be an additional decrease in
the interest rate in all the loans. The aforementioned shall apply
to the extent that the Company shall meet the terms set in the
agreement, including, among other things: (a) the Company will hold
each of the subsidiaries by means of a designated Cypriot company
under full ownership of the Company (the "Cypriot Companies"). The
holdings of the Company in the Cypriot Companies will be pledged in
favor of the bank, as per the Cypriot Law, in order to assure the
payment of the loans of the subsidiaries to the Bank (jointly and
severally); (b) A cross default mechanism will be implemented such
that each of the subsidiaries will be obligated that in any event
whereby the ratio in a certain project between the income with the
deduction of operative expenses (including tax expenses) and the
debt service (payment of principal and interest) (the "Debt Service
Ratio") shall exceed 1.05, a method of transferring funds shall
apply, calculated above the Debt Service (the "Surplus") for
subsidiaries, where the ratio is under the Debt Service Ratio. In
the event of Surplus in the Debt Service Ratio in all the loans,
the balance of funds shall serve for an early payment of the
balance of principal of the loans' (c) in reference of the St.
Petersburg Project (the "St. Petersburg Project") under
proprietorship of Petra-8 LLC ("Petra"), a fully owned subsidiary
of the Company, Petra will be obligated to pledge in favor of the
Bank 60% of the cash flow, emerging from the sale of apartments and
commercial areas under
construction, in respect of which population form was received
(which were not sold, as yet) and will utilize said amount for
payment of the principal of the loan with respect to the St.
Petersburg Project (the "Petra Loan"). After full payment of the
Petra Loan and to the extent that there are still funds for this
purpose out of the aforementioned amounts, they will serve for
payment of the principal of the loans of the Subsidiaries.
5. The Company has a negative working capital in total of
approx. USD393.7 million as at June 30, 2016, a loss related to the
shareholders of the Company in the amount of approx. USD20.3
million for the 6 months period ending on same date, and also an
inclusive loss related to the shareholders of the Company in the
amount of approx. USD15.4 million for the 6 months period ending on
same date. Furthermore, during the 6 months period ending on June
30, 2016, there was a decrease in the capital related to the
shareholders of the Company in the amount of USD11.3 million,
whereby as of June 30, 2016, the Company has a negative capital
related to the shareholders of the Company in total of approx.
USD45.4 million. Furthermore, the Company has cash balances
available to it, which are sufficient to cover its liabilities for
a 12 month period from the date of signing the financial
statements, under the assumption that no payments to the Debentures
Holders will be made and no payment of principal to part of the
funding banks in Russia will be executed during said period.
The Company continues to examine at close the developments in
the economic condition of Russia, developments which are external
to the operations of the Company and independent of them. It
continues to act in order to narrow down its exposure to the
economic conditions to the extent possible, inter alia, by setting
maximum exchange rates to lessees of assets of the Company and
holding negotiations with funding banks, in order to defer the
payment dates of loans until the economic situation stabilizes.
In light of all that is stated above, there are significant
doubts as to the continuance of operation of the Company as a going
concern. The financial statements do not include any adjustments
with respect to the values of assets and liabilities, as well as
the classification thereof, which could be necessary if the Company
shall not be able to continue operating as a going concern.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. Basis of preparation of the interim financial statements:
The interim condensed consolidated financial statements have
been prepared in accordance with the International Financial
Reporting Standard IAS 34.
b. New standards, interpretations and amendments adopted by the Company:
The significant accounting policies and methods of computation
followed in the preparation of the Interim Condensed Consolidated
Financial Statements are identical to those followed in the
preparation of the latest annual financial statements.
NOTE 3:- FINANCIAL INSTRUMENTS
Set out below is a comparison of the carrying amounts and fair
values of financial instruments as of June 30, 2016:
Carrying Fair
amount Value
--------------- ----------
U.S. dollars in thousands
---------------------------
Financial liabilities:
Debentures (series A) 4,500 1,021
Debentures (series B) 18,862 6,042
Debentures (series C) 38,572 6,200
Debentures (series D) 46,817 7,187
Debentures (series E) 113,302 17,400
Debentures (series F) 41,807 7,674
263,860 45,524
=============== ==========
The fair value of the Bonds is measured based on quoted market
prices, according to Level 1 of the fair value hierarchy.
There is no material change in the fair value of bank loans in
compare to the value presented in the annual financial
statements.
NOTE 4:- SEGMENTS
Commercial Residential Total
---------- ----------- --------
Unaudited
---------------------------------
Six months ended 30 June
2016: U.S. dollars in thousands
---------------------------------
Segment revenues 14,803 2,472 17,275
========== =========== ========
Segment results (24,322) (7,086) (31,408)
========== ===========
Unallocated income (3,606)
Finance costs, net 11,364
Loss before taxes on income (23,650)
========
Commercial Residential Total
---------- ----------- --------
Unaudited
---------------------------------
Six months ended 30 June
2015: U.S. dollars in thousands
---------------------------------
Segment revenues 19,304 46,894 66,198
========== =========== ========
Segment results (48,709) (4,379) (53,088)
========== =========== --------
Unallocated income (4,729)
Finance costs, net (19,619)
Loss before taxes on income (77,436)
========
Commercial Residential Total
---------- ----------- ---------
U.S. dollars in thousands
----------------------------------
Year ended 31 December 2015:
Segment revenues 35,079 51,206 86,285
========== =========== =========
Segment results (36,035) (8,256) (44,291)
========== =========== ---------
Unallocated expenses (12,710)
Finance expenses, net (119,480)
Loss before taxes on income (176,481)
=========
NOTE 5: - EVENTS DURING THE PERIOD
1. Changes to the Company's Office Holders and Directors
On May 17, 2016, the Company announced that Mr. Saydam
Salaheddin was appointed as the Chairman of the Company; and
similarly that Messrs. Nigel James Wright and Eliezer Fishman
ceased to serve as Company chairman and director, respectively. In
light of the termination of his service to the Company on 16 May
2016, Mr. Eliezer Fishman has ceased to be a related party to the
Company.
2. On 21 June 2016, Decision No. 524 of the Saint Petersburg
Government took effect - "Rules For The Use Of Ground And Site
Developments". The decision is detailed over more than 350 pages
and it deals with zoning restrictions in the city of Saint
Petersburg. At this stage, the Company identifies two primary
changes relating to: (a) the limitations on the permissible height
of a building; and - (b) the lowering of the permissible building
space utilization. The decision allows for a transition period for
the application of the new rules to be held until 31 December 2018.
At the end of the transition period, a committee will be
established and charged with an analysis of each situation and will
be authorized to approve of certain exceptions from the building
height restriction.
To date, the Company is reviewing the decision of the Saint
Petersburg government and its implications on the subsidiary of the
Company owning a residential building project in the city if
any.
3. Engagement of the Company in the acquisition of partnership
rights in a project in Moscow, Russia
In the course of negotiations held between the Company and
SberBank (the "Bank") for the purpose of formulating a new
framework for the payment of loans provided by it to the Company as
explained in Note 1.B.4, which to date stands at a total of USD 160
million, the Company is required to purchase the full ownership
rights in the century project in Moscow (the "Century Project"),
this is, among other reasons, for the purpose of creating a pledge
in favor of the Bank over the rights in the portion of the Century
Project financed by the Bank. The Company entered into an agreement
to that affect on 22 June 2016.
The agreement for the purchase of the full ownership rights in
consideration of a total of USD 8 million, of which the net
consideration to be paid by the Company in the purchase transaction
will total approximately USD 4.75 million after offsetting the
balance of the partners obligation to the Company (the "Purchase
Transaction"). Subject to the closing of the Purchase Transaction,
the Company will hold 100% of the companies and rights in the
Century Project, whereby the Company's rights in part of the
Century Project, as financed by the Bank, will be pledged in favor
of the Bank, as part of the debt restructuring.
The consideration as set by the Purchase Transaction is expected
to be approximately 7% above the estimated value of the Century
Project based on a valuation carried out on 31 March 2016, to the
extent that the Purchase Transaction is completed, the Company is
expected to report a loss of approximately USD 0.5 million in its
financial statements.
This agreement is subject to certain conditions precedent
required for the closing, including the completion of the debt
restructuring between the Bank and the Company and receipt of the
Bank's approval of the Purchase Transaction.
NOTE 6: - SUBSEQUENT EVENTS
1. On July 4, 2016, Mr. Constantinos Pandelides ceased to serve
as an independent director with the Company.
2. On July 7, 2016, the Company notified that the following
individuals ceased to be interested parties of the Company: (a) Mr.
Ronit Fishman-Ophir; (b) Mrs. Anat Manipaz; (c) CDK Financing and
Investment Ltd.; (d) Powercard (2000) Ltd.; (e) The assets of
Fishman Family Ltd.;
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR DDGDIBDBBGLL
(END) Dow Jones Newswires
August 17, 2016 02:01 ET (06:01 GMT)
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