Nochi Dankner's debt.
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IDB Holding Corporation, Nochi Dankner's holding company, shows no signs of recovering from its critical financial condition, its third-quarter financial statements show.

The report, along with that of IDB Development Corporation - the company's wholly owned unit and its main investment channel - were released just hours ahead of the Friday night deadline for turning in third-quarter statements. Adding to its boss' headaches, IDB officially announced that talks with U.S. private equity firm KKR for a loan of up to $250 million had broken off.

On the positive side, IDB Holding reported a NIS 20 million quarterly loss, compared with a NIS 1.78 billion loss the same time a year ago. But the company finished the first nine months NIS 973 million in the red, mainly due to its investment in the Maariv publishing group, the write-off of the Las Vegas Plaza casino hotel project, along with large write-downs associated with the sharp drop in value of its Credit Suisse shares in the first half of the year.

Moreover, IDB Holding's auditors kept the "going concern" notice for the company's financial reports, indicating their doubt over its ability to continue operating in the foreseeable future despite assurances by the company's board that it's capable of paying off all its liabilities on schedule.

Shares of IDB Holding dropped more than 13% yesterday and Thursday in Tel Aviv Stock Exchange trading.

IDB Holding shows a NIS 1.64 billion deficit in owners' equity and more than NIS 2 billion in financial liabilities, with just under NIS 200 million in its coffers - enough to cover its debt payments until June 2013 but NIS 325 million short of the funds needed to meet its obligations in the second half of 2013.

Representatives of one set of bondholders have been insisting that a NIS 65 million interest payment to other bondholders scheduled for December 20 be paid from funds sourced from outside the company. A proposal was made yesterday at a bondholders' meeting attended by top IDB brass that the company deposit an additional NIS 21 million with bond trustees, representing the relative proportion attributable to other bondholders, to avoid favoring one group of creditors over another.

Back within 24 hours

Assuming Argentine investor Eduardo Elsztain exercises his option to expand his stake in Ganden Holdings, IDB's closely held parent, from 10% to 31% in exchange for a $75 million cash injection, the bondholders also insisted that two-thirds of the amount be transferred directly into IDB Holding. In return, yesterday the company hinted at its willingness to have NIS 120 million transferred - about 40% of the total. Ganden itself owes NIS 600 million to Bank Leumi and Mizrahi Tefahot Bank.

While his lieutenants were meeting with bondholders, IDB controlling owner Nochi Dankner was jetting off to Argentina to try to persuade Elsztain to exercise the option and invest the $75 million.

Dankner had been forbidden to leave Israel during the Israel Securities Authority's ongoing investigation into fraud and other allegations against him concerning suspected stock manipulation surrounding a share offering by IDB Holding last February. However, Dankner received special permission to travel after committing to deposit an additional NIS 3 million, on top of NIS 5 million already put up, on condition that he'd return within 24 hours if asked to do so by the authority. An IDB spokesman said the judge permitted Dankner to travel to any destination he so desires.

IDB Development siphons more cash

IDB Development posted a NIS 110 million profit in the third quarter, compared with a NIS 1.73 billion loss in the same period last year. The company lost NIS 793 million, however, over the first nine months of the current year, plunging owners' equity into a NIS 39 million deficit and distributable earnings deeper into a NIS 2.45 billion deficit, which will prevent it from handing out dividends anytime in the foreseeable future.

The company's dismal fortunes haven't prevented it, however, from sinking more funds into IDB Tourism and Israir Airlines, purchased from Dankner, former IDB deputy CEO Avi Fischer, and other Ganden Holdings shareholders in 2009 for just NIS 1.2 million in one of the most scandalous interested-party transactions witnessed by the capital market. IDB reported pumping another NIS 22 million into IDB Tourism in September, plus an additional NIS 8 million in November, for a total of NIS 55 million since the beginning of the year.

Meanwhile, IDB Development owes its own bondholders NIS 4.2 billion, and the banks and other financial institutions another NIS 2.1 billion. The company has so far managed to meet all its obligations and hasn't yet been branded with a "going concern" disclaimer.

The holding company's challenging financial situation, however, has prodded its bondholders to form a representative group composed of U.S.-based York Capital Management, which has acquired 20% of the debt, along with Psagot Investment House and Phoenix Holdings.

IDB Development, with NIS 735 million in liquid assets reported at the end of September, expects to finish the year with NIS 1.11 billion in cash after having received the second payment from Len Blavatnik for his purchase of a 49.9% controlling stake in of Clal Industries. This, however, will fall short of covering the estimated NIS 1.47 billion in payments owed by IDB Development during 2013.

The company expects to bridge the shortfall by selling its directly held 13.3% stake in Koor Industries at current market value for NIS 290 million, and its remaining 10.64% of Clal Industries stock for NIS 227 million.