Eduardo Elsztain may not be a familiar name to Israelis, but the third-generation real estate developer is said to be the richest Jew in Argentina. Now he is reportedly in talks to invest up to $100 million in Ganden Investments, the privately held company through which Nochi Dankner controls IDB Holdings.
Elsztain, who heads IRSA, Argentina's largest real-estate company, would pay between $25 million and $100 million for the stake, IDB Holding Corporation said in a statement to the Tel Aviv Stock Exchange yesterday, ending days of speculation.
IDB Holdings said that key issues between the two sides had yet to be clarified, among them the consent of Ganden's other shareholders. But IDB said that if an agreement is completed and signed, Ganden will put a "certain portion" of the amount into the company.
"However, at this stage negotiations between the two sides are underway - and there is no certainty that these understandings will yield a final agreement," IDB said.
IDB Holdings shares ended up 0.8% to NIS 14.13 on the Tel Aviv Stock Exchange after trading was briefly suspended pending the announcement. Bond prices rallied, although they remained firmly in the junk category. IDB holdings has been coping with a massive debt load and has begun talks with bondholders since its auditors attached a "going concern" warning to its second-quarter financial statements three weeks ago. The warning means auditors don't see how the company can repay its debt.
For that reason, analysts expressed surprised that Elsztain was interested in taking a stake in the IDB group at all. "It's not a rational investment," said one senior capital markets figure, who spoke on condition of anonymity. "No investor would risk so much of his personal capital to invest in a company that belongs to its bondholders, who are owed NIS 1.7 billion."
All told, IDB has debt of NIS 2 billion, including NIS 300 million to banks. Against that, it has NIS 200 million in cash or the equivalent on its balance sheet to meet repayments due through May 2013. Over the next six months, IDB needs to come up with another NIS 375 million to meet debt repayments.
The debt woes of the group don't end there. IDB Development Corporation, the company directly under IDB Holding in the Dankner pyramid, has NIS 4.2 billion in debt to bondholders and another NIS 2.2 billion in debt to banks and other financial institutions. It has negative equity of NIS 183 million, although it also has NIS 1.25 billion in cash thanks to the sale of Clal Industries, a sum that will grow as it completes other divestments. Ganden itself has debts of NIS 500 million to NIS 600 million to Bank Leumi and another NIS 100 million to Mizrahi-Tefahot Bank. It is not clear whether Ganden can service the debt; if it can't, the banks are entitled to its IDB Holding shares as compensation.
Bringing in a new investor will not immediately solve Dankner's debt woes because it will take weeks, if not months, to be completed. If Elsztain opts for a 30% stake in Ganden, he will need the approval of the insurance commissioner because he will become an indirect shareholder in Clal Insurance Enterprises, in which he would hold 8%.
Elsztain, 52, may not be a familiar name to Israelis, but the third-generation real estate developer is said to be the richest Jew in Argentina. His IRSA controls Banco Hipotecario, credit card company Tarshop and a number of luxury hotels all over the world. Elsztain also owns some 2,000 hotel rooms in New York, and five years ago bought Ilan Ben-Dov's 35% holding in Manhattan's Lipstick Building.
The business activities of Elsztain are integrated with his extensive ties in the ultra-Orthodox world, both in Israel and elsewhere. Elsztain is considered close to the Chabad-Lubavitch organization and has helped establish Chabad institutions throughout the world.
In the early 1990s, Elsztain consulted with the Lubavitcher Rebbe about investing some $45 million on Wall Street. The rebbe told him to sell all his stocks and buy real estate assets, and Elsztain acted accordingly.
His ties to Rabbi Yoshiyahu Yosef Pinto, who lives in New York, led him five years ago to buy Ben-Dov's share the Lipstick Building in midtown Manhattan. In 2009, Maariv reported on a pilgrimage that Elsztain, Ben-Dov and other businessmen made with Pinto and a group of his adherents to the grave in Bulgaria of Rabbi Eliezer Papo, a 19th-century rabbi best known for his "Pele Yoetz," a book on Jewish ethics.
This week the New York Post reported that Pinto was the link connecting Dankner and Elsztain. Pinto said that he sent Elsztain and other South American businessmen to Israel to speak with Dankner and advance the transaction.
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