GCity Stock Plummets Over 20% Amid Brazilian Election Fallout
Translated & summarized from Globes by baba
GCity's stock plummeted by 22% after Brazil's recent election results, wiping out over NIS 400 million in market value due to investor concerns about its Brazilian mall exposure. The company faces difficulties selling its Brazilian assets, valued at NIS 1.8 billion, because high Brazilian government bond yields make local real estate investments unviable. GCity needs to raise funds to meet significant upcoming debt maturities, and the stock market is expected to further devalue its assets if current conditions persist.
The story in 5 lines · by baba
- GCity stock dropped 22% after Brazil's elections, erasing over NIS 400 million in market value.
- Investors fear GCity's significant exposure to Brazilian shopping malls following the election results.
- Selling GCity's Brazilian assets is economically unfeasible due to high local government bond yields.
- GCity needs to raise funds to meet large debt maturities in the coming years.
- The company's Brazilian properties are valued at NIS 1.8 billion on its books.
GCity's stock experienced a significant drop of approximately 22%, erasing over NIS 400 million from its market value, following the surprising results of Brazil's recent elections. The company, managed by Chaim Katzman, continues to fall in Tel Aviv trading, now valued at NIS 1.5 billion. Investors are reportedly concerned about GCity's substantial exposure to the shopping mall sector it operates in Brazil.
Since the Brazilian election results became known, the Brazilian Real has fallen about 10% against the dollar, and the Ibovespa stock index in São Paulo has dropped roughly 18%. GCity, controlled by Katzman through the public company Norstar, has considerable exposure to the Brazilian economy. The company is currently undergoing an asset divestment process due to its large debt obligations. In August, GCity announced a plan to sell assets worth NIS 6.1 billion, including its Brazilian properties.
GCity owns 85 properties globally, primarily commercial malls in Israel, Poland, Nordic countries, the US, Canada, and Brazil. These real estate investments and developments have a combined value of NIS 24 billion as of the first half of the year. The company's equity attributable to shareholders stood at NIS 4.1 billion, and it is trading at approximately 35% of its book value.
The investor panic and stock decline are attributed to a combination of significant bond maturities in the coming years and difficulties in liquidating certain assets. A market source stated that the Brazilian elections "finished the market in that country." GCity has seven income-generating properties in Brazil, with a total area of 151,000 square meters, valued on its books at NIS 1.8 billion. However, the source noted that Brazilian 10-year government bonds currently offer an annual yield of 15.4%, making it economically unfeasible to sell GCity's Brazilian assets at desired prices, as any buyer would need a 20%-25% annual yield from rental income to compete. This situation is leading to a drastic revaluation of GCity's assets. Even without selling Brazilian assets, the stock market is expected to price them lower. The situation in Eastern Europe is also described as not very positive, contributing to the pressure on GCity's stock price. If the current conditions persist, bond prices may also come under pressure.
GCity's bond series on the Tel Aviv Stock Exchange have remained relatively stable, trading at yields ranging from 2.3% to 7.6%, though some are approaching problematic levels. The company needs to generate funds for investors to meet its debt obligations. A deal in the summer to bring Zachi Abu in as a partner reportedly fell through.