Electrochemical Industries 1952 Ltd. Reports On Update of Rating of Company Debentures.Business Editors NOTE: Translation from Hebrew ACRE, Israel--(BUSINESS WIRE)--Dec. 11, 2001 Electrochemical electrochemical /elec·tro·chem·i·cal/ (-kem´i-k'l) pertaining to interaction or interconversion of chemical and electrical energies. e·lec·tro·chem·i·cal adj. Industries (1952) Ltd. (AMEX AMEX See: American Stock Exchange :EIL EIL Experiment in International Living EIL Environmental Impairment Liability EIL Engineers India Limited EIL Exide Industries Ltd EIL Enterprise Integration Lab (University of Alabama) ) The Company hereby informs that on December December: see month. 10, 2001, it was notified by "Maalot - The Israeli Securities Rating Company Ltd." ("Maalot"), on an update of rating of the Company's debentures to grade CCC CCC A very speculative grade assigned to a debt obligation by a rating agency. Such a rating indicates default or considerable doubt that interest will be paid or principal repaid. Also called Caa. regarding tradable debentures series 3, 4, and 5, and grade CC regarding non tradable debentures series 6-12. Attached is a translation of Maalot's notification and major considerations in respect to the above rating. In light of the Company's business status, the Company is formulating a financial plan, as mentioned in the Directors Report dated November November: see month. 30, 2001 - para. 22, amongst which components will be receiving a State loan (as published in an immediate report dated December 6, 2001) and recycling recycling, the process of recovering and reusing waste products—from household use, manufacturing, agriculture, and business—and thereby reducing their burden on the environment. of long term loans. 1. BONDS IN CIRCULATION
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Balance as at Interest Linkage Repayment Rating
June 30, 2001 period
(NIS thousands)
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Series 3(a) 21,082 0.7% Index 2002-2005 CCC
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Series 4(a) 6,014 German Libor DM 2002-2003 CCC
(currently
3.3%)
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Series 5(a) 15,003 Libor + 3.1% Dollar 2002-2004 CCC
(currently
5.5%)
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Series 6,7,8
(b),(c) 33,058 6.2% Index 2002-2007 CC
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Series 9(b),(c) 20,472 Libor +2.25% Dollar 2002-2007 CC
(currently
4.55%)
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Series 10(b),
(c) 12,263 Libor +2.25% Dollar 2002-2008 CC
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Series 11(d) 928 Libor +2.25% Dollar 2002-2004 CC
(currently
4.25%)
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Series 12(b),
(d) 19,725 Libor +2.25% Dollar 2002-2009 CC
(currently
4.25%)
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Total bonds 128,542
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The difference in the rating of the various series results from
the collateral existing for each series. Series 3-5 has financial
collateral with a value of about 60% of the liability (about 6.5
million dollars enabling the repayment of the principal and interest
for two years). The other bond series are inferior compared to these
series and the other debts of the Company.
(a) In September 2001 the General Meeting of bondholders decided
that the consideration from the sale of DPL, about 3.75 million
dollars less tax, will be deposited in an additional financial
deposit, and remain as guarantee for the securities under the trust
deeds - 3 million dollars. Moreover, it was decided that in the coming
repayments of principal the amounts of the bonds series 3, 4 and 5
expected for December 2001 and March 2002 (2.5 million dollars) will
be paid from the deposit and above guarantees.
(b) The Company undertook, that as long as these loans are not
paid, the covenants according to which the ratio of the debt (total
long-term loans from banks and bonds + surplus current liabilities
over current assets) to shareholders' equity and minorities rights
will not exceed 3, and a violation of this limitation will be grounds
for the immediate or partial repayment of the bonds in an amount which
will restore this ratio. Correct as of September 2001 this ratio
stands at 2.8 (according to the Company's calculation - see details in
Main Considerations) compared to a ratio of 2 at the end of 2000. The
sharp decline results mainly from an erosion in shareholders' equity
and a transition from positive working capital to negative working
capital.
(c) Institutional private issues, starting the end of 1997, are
inferior to previous bondholders and secured by a floating charge.
(d) Convertible bonds.
2. Main considerations for rating The decline in the rating results from the continued decline in the Company's financial and business parameters. In Maalot's opinion the recession in global activities which significantly deteriorated over the last months of 2001 is expected to aggravate the state of the PVC PVC: see polyvinyl chloride. PVC in full polyvinyl chloride Synthetic resin, an organic polymer made by treating vinyl chloride monomers with a peroxide. market and to slow down the recovery after a recession of 5 years. The financial stability of the Company was significantly harmed by the recession in the branch and management attempts to meet this crisis, including a reduction in the number of employees and the sale of its holdings in companies which deal with downstream From the provider to the customer. Downloading files and Web pages from the Internet is the downstream side. The upstream is from the customer to the provider (requesting a Web page, sending e-mail, etc.). products, are not sufficient to respond to the state of the branch.. In Maalot's opinion there is a low likelihood of the ability of the Company to pay its full liabilities from current sources. In Maalot's opinion, the Company's ability to meet its repayment liabilities is dependant on Adj. 1. dependant on - determined by conditions or circumstances that follow; "arms sales contingent on the approval of congress" contingent on, contingent upon, dependant upon, dependent on, dependent upon, depending on, contingent outside factors such as the support of creditors and the government In Maalot's opinion, a change in the terms of the issued bonds is expected to continue to influence their rating. Electrochemical Industries Ltd. (hereinafter here·in·af·ter adv. In a following part of this document, statement, or book. hereinafter Adverb Formal or law from this point on in this document, matter, or case Adv. 1. "EIL" or "the Company") is a public company owned by ICC ICC See: International Chamber of Commerce , an American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of Corporation (55.2%) owned by Dr. John Farber. The Company operates in the plastic industry and focuses mainly on the production of PVC which is a commodity affected by the price of raw materials (mainly ethylene ethylene (ĕth`əlēn') or ethene (ĕth`ēn), H2C=CH2, a gaseous unsaturated hydrocarbon. It is the simplest alkene. and its derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. ) and from fluctuating fluc·tu·ate v. fluc·tu·at·ed, fluc·tu·at·ing, fluc·tu·ates v.intr. 1. To vary irregularly. See Synonyms at swing. 2. To rise and fall in or as if in waves; undulate. v. cycles of demand and supply in te global economy on which the Company has no influence. The Company is the only manufacturer of PVC in Israel and as such it supplies most of the local demand in this field. About 40% of total output is directed to the local market and the balance is produced for export. The Company has interested parties which have shown over time considerable support for the Company, mainly by the conversion of capital notes to share capital at times of crisis, finding suppliers credit for the acquisition of raw materials and providing shareholders' loans. The interested party in the Company, ICC, increased credit to the Company for the acquisition of raw materials from NIS Niš or Nish (both: nēsh), city (1991 pop. 175,391), SE Serbia, on the Nišava River. An important railway and industrial center, it has industries that manufacture textiles, electronics, spirits, and locomotives. 30 million at the end of 2000 to approx. NIS 50 million at the end of the third quarter of 2001, of which about NIS 24 million (approx. 5.6 million dollars) were converted to long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. shareholders' loans which are subordinate to the banks. The Company approached the government with a request for financial assistance of 5 million dollars by way of government loans. On December 6, 2001 the Company published an immediate report according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. which it received notice from the Accountant General The Accountant General or Accountant-General was formerly an officer in the English Court of Chancery who received all moneys lodged in court, deposited them in a bank, and disbursed them. Division of the Ministry of Finance that the Ministerial Committee The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. A Ministerial Committee is a committee consisting of Ministers of government portfolio. approved granting a loan of NIS 21 million to the Company. The loan is linked to the index an bears market interest, and the period of repayment will not exceed 5 years. According to the Company's report, granting a loan is subject to various conditions and the Company is holding discussions with the Accountant General Division. In the Company's opinion, the loan funds will be received not later than the end of the first quarter of 2002. During 2001 the worsening wors·en tr. & intr.v. wors·ened, wors·en·ing, wors·ens To make or become worse. Noun 1. worsening - process of changing to an inferior state decline in quality, deterioration, declension state of the PVC branch continued for the 5th year consecutively. The average price per ton of PVC declined by a rate of 25% compared to the average price in 2000. The price of ethylene, the Company's main raw material, also declined but at a more moderate rate (about 7%). As a result, the actual consideration per ton of PVC declined from 158 dollars in 2000 to a level of about 117 dollars per ton, and during the third quarter there was the lowest contribution recorded over the past 20 years. An examination by quarters shows the contribution of about 80 dollars per ton of PVC in the first quarter and about 150 dollars in the second quarter, while in the third quarter of 2001 there was an actual contribution of 90 dollars per PVC ton. These contributions are lower than the breakeven breakeven 1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations contribution (the contribution required to cover the Company's fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). including financing) and the margin between the contribution to breakeven and the actual contribution worsened in 2001 and reached 73 dollars per ton compared to 42 dollars per ton in 2000. As a result of the margin between the contribution to breakeven and the actual contribution, the Company registered a loss of NIS 26 million in the third quarter and an aggregate loss of NIS 41 million from the beginning of 2001. The losses from operations resulted in a decline in the ratio of shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. to the balance sheet to 14.4% at the end of the third quarter of 2001 (17.6%, according to the Company, if owners loan, in the sum of approx. NIS 24 million, is to be converted to equity) and an increase in the ratio of debt less liquid assets Cash, or property immediately convertible to cash, such as Securities, notes, life insurance policies with cash surrender values, U.S. savings bonds, or an account receivable. to CAP less liquid assets to 79% at the end of the third quarter of 2001. These ratios show the Company's very low financial stability. The Company's cash balances that are not mortgaged were maintained over the years in amounts exceeding 10 million dollars in order to have a backup at times of crisis were a total of 2 million dollars only at the end of the third quarter of 2001. The Company's current ratio of less than 1 shows the low liquidity. In addition, covenants imposed on the Company in the framework of its obligations to the bondholders of series 6 -12, according to which the ratio of the debt to shareholders' equity will not exceed 3 and a violation of this limitation will be grounds for immediate or partial repayment of the bonds for an amount which will restore this ratio. This ratio stands, at September 30, 2001 at 2.8 (according to the Company's calculation including in the framework of shareholders' equity and shareholders loans of NIS 24 million with the intention to regard it as payments on behalf of capital). |
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