Tel Aviv, May 26, 2011 (GLOBE NEWSWIRE) -- 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.
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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.