This story gets weirder and weirder.
Unless you get the daily news……from Israel, you might have heard about this, nor would you otherwise in the coming days.
But the story out of Israel, from the Haaretz Daily, is that almost $50 Million in Urbancorp bonds, which are traded on the Tel Aviv Stock Exchange, have plummeted in value to “junk bond” status.
I wasn’t going to continue writing about Urbancorp, but this is something that needs to be read…
I mean it, folks: I didn’t set out to write about Urbancorp, again.
I’m not beating a dead horse.
But the news keeps coming out, and it’s getting crazier and crazier.
The story about TARION potentially revoking Urbancorp’s registration was just the beginning.
This story out of Israel shows you just how bad things were, and how bad they’re about to get.
You can read the full story HERE.
But if you’re not an online subscriber to the Haaretz Daily (seriously, who isn’t?), then you can only read the intro to the piece.
So here’s the story, in full:
$47.6 Million at Risk In Israel As Urbancorp Bonds Plunge Amid Doubts By Investors
Haaretz Daily Newspaper
April 4, 2016
Yields soar on TASE-traded debt as Toronto property developer loses lawyers, key director.Urbancorp, one of 15 foreign real estate companies with bonds trading on the Tel Aviv Stock Exchange, was struggling with multiple crises Monday, jeopardizing some 180 million shekels ($47.6 million) in bonds held by Israeli investors.
Trading in the Toronto property developer’s bonds was suspended on Sunday before Urbancorp’s local attorneys took the unusual step of severing its contract with the company Monday. James Somerville said he was quitting the board of directors, just two weeks after he had been appointed to provide expertise in accounting.
Urbancorp’s bonds, which were issued only last December with a coupon of 8.15%, plunged Monday to 45 agorot, boosting their yield to a junk-bond level of 53%.
One of Toronto’s biggest property companies, Urbancorp is one of 15 North American property companies in the last two years to issue a combined 10 billion shekels in debt on the TASE.
Although the 8.15% coupon on Urbancorp’s bond signaled the risk of holding the debt, the bond attracted many of Israel’s leading institutional investors, including Psagot, Ayalon, Analyst, Migdal and Meitav Dash as well as private and small investors.
On Sunday, Urbancorp said in a lengthy announcement that its attorneys, Shimonov & Company, were severing their relationship with the company — a move the market saw as signaling a crisis of confidence in the firm.
Urbancorp has yet to release its 2015 financial report after its audit committee voted to delay it due to “open issues and questions,” including a valuation of a geothermal-heating project it controls. But the most critical issue facing the company is a C$12 million ($9.2 million) capital injection, Urbancorp’s controlling shareholder Alan Sakin had committed to when the company issued its prospectus last November head of the bond sale.
However, at the end of March it emerged that Sakin had taken out a loan from a non-bank financial group with considerable restrictions attached to it to make good on his commitment. The restrictions were not reported to Israel investors in a timely way and it is not yet clear whether the capital fulfils Saskin’s commitment.
Meanwhile, Canada’s Tarion Warranty Corporation, which provides a warranty on new homes from registered builders, said it would no longer issue insurance for deposits from buyers of Urbancorp properties.
Tarion said it had concerns about Urbancorp’s financial health and the numbers of claims from buyers being made against the company.
Claims have been filed against Urbancorp over delayed projects, deposit refunds and new homes in which the builder didn’t fulfil the contract with the homeowner.
This is just insane.
Those of you in the financial world – I need you to weigh in here.
Is there anything odd about a Toronto-based developer selling bonds on the Tel Aviv Stock Exchange? I know we’re a “globe” as opposed to planet these days, and global companies have financial interests in many different countries.
But the fact that Urbancorp raised capital in Israel tells me that it was because they could no longer do so here in Canada.
Somebody told me in passing a while back that Urbancorp owes “tens of millions” of dollars to CIBC, and that they can’t get a dime from a lender in Canada.
So is that what happened here? They turned to Israel?
These guys are finished, no question about it. TARION is the least of their worries.
Two sentences in that article jump out at me:
1) James Somerville said he was quitting the board of directors, just two weeks after he had been appointed to provide expertise in accounting.
2) Urbancorp said in a lengthy announcement that its attorneys, Shimonov & Company, were severing their relationship with the company
Okay, so the person appointed to look over the books saw what was in them, got scared, and left.
And the lawyers representing the firm have left as well.
I feel like we’re just at the start of this story, and we’re going to look back on this in a year and say, “We had no idea where it was going.”
Does anybody else see a massive question mark surrounding their financing of projects?
Think about it – the Kings Club condo that was “cancelled” last year was done so by returning the deposits to the original buyers, with the minimum interest allowed (probably 0.75%), so Urbancorp might have essentially “borrowed” that money from would-be buyers, instead of borrowing money at 6-8% from commercial lenders.
Their current bonds have a coupon of 8.15%?
Something doesn’t add up.
Wait, a lot of things don’t add up.
But I think I’m finished with this story, unless we uncover more news.
There’s a lot more going on in the Toronto real estate market today. I think on Friday, we’ll take a look at “exclusive listings,” since people keep emailing me about it…