Text size

Clal Finance analyst Yuval Ben-Zeev could hard write that the net asset value of IDB is zero, which is what he wrote about Africa Israel Investments last week. Why? Mainly because Ben-Zeev works for IDB. Clal Finance is one of the sprawling holding company's many, many assets.

IDB Holding, the parent company, is one of the biggest debt issuers in the land. Yet you won't find much analytical coverage of the group, which is controlled by Nochi Dankner. You certainly won't find reports concluding that it's net asset value is zero.

TheMarker looked at the figures and has concluded that in fact, it isn't. Its net asset value is even lower. That means its debt is greater than the value of its assets, and the difference is NIS 2.5 billion. Yet IDB Holding's market capitalization on the Tel Aviv Stock Exchange is NIS 2.2 billion, meaning there's an NIS 5 billion gap between its market valuation and its net asset value (NAV).

NAV is the usual parameter by which holding companies are evaluated. It is one way to decide whether the parent company is a good investment, compared with the merit of investing directly in its subsidiaries.

There are two ways to calculate NAV. One is to deduct liabilities from the market valuations of the subsidiaries. The second is based on the shareholders equity of the subsidiaries, again with liabilities subtracted.

IDB Holding has one holding - IDB Development (85.4%), under which are six companies: Discount Investment Corp, Clal Industries, Clal Insurance, Koor Industries, and Global Village Telecom. IDB Development also invested in land in Las Vegas. Aside from the Nevada property, all its subsidiaries are publicly traded, making the math easy: the value of IDB Development's holdings in subsidiaries is NIS 4.4 billion.

The Las Vegas land is worth nothing at this point because the company has already written off all the equity it has invested together with Yitzhak Tshuva's Elad group there.

With assets of NIS 4.4 billion and liabilities of NIS 5.28 billion, IDB Development's NAV is minus NIS 900 million. Even if the Las Vegas site is repriced upwards, its value would have to reach NIS 900 million for IDB Development's liabilities and assets to balance out.

Considering that IDB Holding owns 85% of IDB Development, the NAV of parent company IDB Holding is minus NIS 1.055 billion, while its liabilities are NIS 1.755 billion. Ergo, its NAV is minus NIS 2.5 billion.

IDB could argue that panic and illiquidity in the marketplace are distorting the model, and that the prices aren't a true reflection of value. So, the companies should be evaluated by shareholders equity. IDB Development's NAV by shareholders equity is positive, and is roughly equivalent to its market capitalization, which brings IDB Holding's NAV to roughly zero - roughly minus NIS 200 million.

Specifically, IDB Development's piece of the shareholders equity of its subsidiaries is NIS 7.12 billion, and its financial liabilities are NIS 5.28 billion. From which we conclude that its NAV is NIS 1.84 billion. IDB Holding's share of IDB Development's shareholders equity is NIS 1.57 billion and its liabilities - NIS 1.755 billion. We reach NAV of minus NIS 183 million.

The numbers make one wonder why one would hold shares in IDB Holding or IDB Development when buying directly into the companies they control is an option. IDB would say because of the control premium. But based on NAV, that control premium isn't generating value for investors.

Today's numbers, tomorrow's problem

If assets are less than liabilities, how will IDB repay debt? IDB Development owes NIS 5.3 billion and the parent IDB Holding owes NIS 1.755 billion more.

For one thing, unlike some of the tycoons, Dankner doesn't have to repay much in the immediate run of the next couple of years. Most of the group bonds are long-term. In January 2007, the average duration of the bonds was 3.2 years but now it's more than six years. Also, while other big companies are under pressure from banks, IDB owes most of the money to bondholders.

It is them, then, who should worry about deterioration of the ratio between IDB's assets and liabilities. At present the market doesn't seem worried: Yields on IDB group bonds range from 4.16% to 9.6%, which are yields typical of stable companies.

Maalot S&P has been rating IDB Holding at AA-minus since October 2007 and said then that the ratio between the company's robustness at the solo level relates to its adjusted financial liabilities minus the value of IDB Development. Maalot estimated in 2007 that the ratio of asset value to solo debt was 3.6, and the rating is based on that ratio staying above 3.5.

Today the ratio is 0.86 because of the drop in value over at IDB Development. In October 2007, IDB Development's holdings were worth NIS 5.9 billion and today they're worth NIS 1.5 billion. Yet Maalot hasn't changed its rating of the company.

Maalot could only say that IDB Holding is on its watch list.

IDB's spokesman said TheMarker's calculations are biased and wrong. No analyst would evaluate a holding company based on simple market capitalization of its subsidiaries. Given the condition in the markets today and considering the enormous volatility and panic in the markets, market capitalization isn't relevant, the spokesman said.

There is no question that IDB wouldn't sell any of its dozens of group companies at today's market value prices, the spokesman continued, adding that offers the group receives for its companies are based on premiums of tens, or hundreds, of percentage points above their present market valuation.