Standard & Poor's Maalot Ltd. has downgraded its bond rating for Electra Real Estate Ltd. (TASE:ELCRE) to "A/negative", while removing the company from the credit watch list.
Electra Real Estate is the third company whose bonds Maalot has downgraded because of the company's international exposure, following downgrades for Gazit-Globe Ltd. (TASE: GLOB) and Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY). On May 25, Maalot announced that it would put Israeli real estate companies exposed to international markets on a credit watch list.
Maalot cited Electra Real Estate's increased exposure to real estate developments as a proportion of the company's income-producing and residential property portfolios, and the launch of business in India, which Maalot believes is a high-risk market.
Maalot also cites the slowdown in some international real estate markets and the rise in capitalization ratios, which are adversely affecting property values. Maalot warns that this trend is liable to spread to more markets. It also warns of Electra Real Estate's high exposure to the global credit crisis, which is making it difficult to obtain bank financing for income-producing real estate purchases and projects under development. The deteriorating financing position is seen in the steady increase in the company's financing debt resulting from its aggressive investment strategy, and in the decline in the company's debt to financing expense coverage ratio. Finally, Maalot noted that Electra Real Estate had not met its financing policy goals that were the basis for Maalot's bond rating.
Maalot stated that its negative outlook for Electra Real Estate was due to the company's heavy leverage, exposure to the global credit crisis, and uncertainty in real estate markets. Maalot predicts that the company will seek to reduce its leverage.
Electra Real Estate is a subsidiary of Elco Holdings Ltd. (TASE: ELCO) held through Electra Ltd. (TASE: ELTR), controlled by chairman Gershon Salkind.
Published by Globes [online], Israel business news - www.globes-online.com - on August 10, 2008
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