Isreali construction coy hard hit by Nigeria’s economic woes

Housing & Construction Limited, the giant Israeli building company, has seen its share price lose more than a third of its value in the last six months as the economy of Nigeria reels in the face of plunging oil prices.

Housing & Construction, which is controlled by Shari Arison, the Carnival Cruise Lines heiress who also controls Bank Hapoalim, has been active in African countries for six decades, building big infrastructure projects, paving roads and constructing bridges.

But as the economy of Nigeria, which relies on oil, deteriorates, doubts are being raised about the $110 million the government owes the company – a debt that is equal to about a quarter of Housing & Construction’s shareholders equity. Moreover, projects worth $1.7 billion that the company is working on now, equal to about 40% of its order book, are threatened by delays or cancellations.

On Wednesday, the debt rating agency Maalot said it was retaining its A-plus rating for the company’s bonds but downgraded its outlook to Negative. It estimated that in 2015 the slowdown in Housing & Construction’s Nigerian operations slashed earnings before interest, taxes depreciation and amortization, or Ebitda, by 20%

Housing & Construction shares dropped another 5.9% on Wednesday to 5.17 shekels ($1.31).

Benny Delek, an analyst at Union Bank of Israel, is more sanguine. In a report issued Tuesday he said Nigeria was seeking emergency loans from the World Bank and other sources. “Therefore, risk of Housing & Construction’s Nigeria exposure isn’t as high as the market is seeing it. We still believe that in the end the problems in Nigeria will result in nothing more than a slowdown,” Delek said, noting that he was retaining a Buy recommendation in the stock.

Nigeria is planning to borrow as much as $5 billion to help fund a deficit due to the slump in global oil prices, which have also sent its naira currency into a tailspin. On Tuesday it asked the African Development Bank for a $1 billion loan to help fund an increased budget deficit.

Housing & Construction executives say the loans should enable Nigeria to return to normal economic activity and bring an end to a year of uncertainty. In the meantime, however, the company’s operations have shrunk since a change in government last April, when President Muhammadu Buhari took office.

Nevertheless, executives say they did not think that the existing orders backlog of $1.7 billion would be threatened by the financial crisis, but uncertainty could delay the timetables for some projects.

Another Israeli company that operates in Nigeria is Electra, which leads big projects in air conditioning and electricity and electro-mechanical systems in office buildings and commercial structure. But its exposure to Nigeria is much smaller than Housing & Construction’s. In the first nine months of 2015, Electra derived just 150 million of its 4 billion shekels of revenue from Africa and elsewhere overseas.

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