Avraham (not his real name) was an ordinary Israeli citizen who had come on a trip to Argentina, but the weekend he spent in the Patagonian city of Bariloche this spring is one he will never forget. During the visit, he heard from Jews residing in the city that an Argentine Jewish billionaire, who owns several properties in the area, needed coreligionists to join him on the weekend, to complete the requisite minyan (quorum of 10) for a Jewish prayer service. Avraham expressed willingness and was invited to spend an entire weekend at the swankiest hotel in the region, the Llao Llao, which stands on a hilltop at the edge of town and overlooks Lake Nahuel Huapi.
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Together with a group of Jews from Israel and elsewhere, his stay at the pricey hostelry was covered by his host, a part-owner of the Llao Llao. And despite his wealth, the host chased down the waiters and waitresses to ensure that each of his guests was accorded the proper hospitality.
It is not certain all the incidental guests knew this, but they spent those 24 hours in the company of a local tycoon who controls the largest real estate company in Argentina and an agricultural corporation with dozens of grain and cattle farms. He also has holdings in an Australian mining company that mines metals in South America; office buildings in New York; the major mortgage bank in Argentina; a local credit card company − and also a marginal piece of a holding group that was formerly the Israeli economy’s largest.
Eduardo Elsztain’s guests ate dinner with him that Friday night, and on Shabbat were invited to share both breakfast and lunch with him, and even a drink between meals. Everyone who sat with Elsztain described a modest man, warmhearted, approachable and unassuming, dressed in jeans and a simple shirt. The same went for his wife, likewise an Argentine Jew.
Elsztain has other holdings besides the Llao Llao Hotel in the southern resort beloved of Israelis. He also owns property on a small resort island called Isla Victoria, which is located in the middle of Lake Nahuel Huapi. On occasions when Elsztain stays on the island for Shabbat, the minyan-completers are likely to find themselves flying there by helicopter or sailing there on a yacht − before Shabbat, of course − all for the sake of heaven.
Elsztain, who entered the lives of investors in the Israeli capital market nine months ago, has proved in recent months to be one of its greatest mysteries. In the past few weeks he became the only one willing to invest in Ganden – the private firm through which Nochi Dankner controls IDB Holdings Corporation. Everyone else, it seems, is demanding that Dankner pay the price for his irresponsible financial conduct, which has seen IDB and its pyramid of companies engulfed in debt.
The IDB group owns controlling shares in some of Israel’s best-known companies, including Cellcom and Super-Sol, and Ganden Holdings is the private company through which Dankner effectively controls his IDB empire. Following the accumulation of massive debt, numerous bondholders have been agitating for change and the group has received warnings about its cash-flow situation. However, Dankner received a lifeline last September when he returned from Argentina with Elsztain’s cash injection of $25 million into Ganden, with the promise of further funds to come − to the widespread disbelief of the financial sector in Israel.
In recent months rumors circulated that Elsztain was getting cold feet after the initial investment. But then, earlier this month, the Argentine billionaire convened a surprise press conference in Israel, offering his public backing to the beleaguered Dankner. He also backed Dankner after bondholders went to court, petitioning for control of the IDB group in a debt-for-equity swap. The case is ongoing.
Who, then, is Eduardo Elsztain? How much money does he have? How much is he willing and able to invest? Is the extra money − a reported $75 million − he intends to pour into the IDB group’s Ganden Holding even his? And how can it be that the only investor in the world who is prepared to come to Dankner’s aid is a Jew from the other side of the world who is not known to the local business community?
In the Orthodox community in Argentina, they like to recount a tall tale about how Elsztain acquired Isla Victoria. Elsztain, the story goes, arrived for a meeting on the island with the landowner, and debated whether or not to buy the place. When he went outdoors to tour the island, he came across a spring, and alongside it were deer that had come from afar just to drink. Elsztain looked at them and said to himself that if the buck drank from the spring, it was a sign he should buy the property.
Countering this legend is the testimony of many of his acquaintances, who describe a sharp, focused and quick-witted businessman who does not make decisions on the basis of rabbis’ orders. It is in this space between the business pole and the spiritual pole that we must look for the explanation to his investment in Ganden Holdings.
Anyone who thought Dankner had managed to enlist a naive Jew, one who lacks a thorough understanding of the convoluted situation that the IDB group is in, may be surprised by the scale of the business empire that Elsztain built with his own two hands over the past 20 years. However, it is not certain that the range of companies he is involved in attests to his true wealth and liquidity.
Like Dankner, Elsztain controls some of the companies despite not holding a large number of shares in them. This may be why Elsztain does not necessarily plan to invest further in IDB, but rather is trying to recruit other investors who will join forces with him to rescue the Israeli tycoon from collapse.
Real estate boom
Well beyond his holdings in the Bariloche region, IRSA − the real estate company headed by Elzstain − has been responsible for some of the most prominent developments of the past decade in Buenos Aires. Young Israeli backpackers visiting Argentina may not be aware of this but Elsztain is also the man behind Iaacob House Hostel, which offers Israeli travelers lodgings in the capital at a fair price − as long as they comply with the policy of segregated rooms for men and women. Some say he occasionally comes to spend Shabbat there.
IRSA’s major enterprises have relied on Elsztain’s ability to spot the potential in dilapidated properties and renovate them. In the Puerto Madero district of Buenos Aires − an entire neighborhood that was built on the ruins of the city’s old docks − IRSA built commercial and office space. In the center of the city, Elsztain saw the potential in the ravaged Abasto de Buenos Aires building, a wholesale market that stood empty and mice-infested. Retaining its historic facade, he built the Abasto Shopping Center over the foundations. Another example is Isla Demarchi, where Elsztain was one of the parties behind the construction of a commercial and office complex on an artificial island that extended the area of Buenos Aires into the Plata River.
Elsztain did a good job of exploiting the real estate boom in Argentina in the second half of the last decade to grow with IRSA. With its share price having leapt 155 percent over the past five years, IRSA − which is traded on the New York and Buenos Aires stock exchanges − is now worth more than half a billion dollars. In the 12 months to July 2012, the company netted $61 million, a sum it distributed in full as dividends in the course of 2012.
The company has holdings in two office buildings in New York; 8 percent of an American REIT (real estate investment trust) that invests in hotels; and 10 percent of another Argentine real estate firm, TGLT. IRSA also holds 12 percent of a local credit card company by the name of Tarshop.
Elsztain holds 65 percent of IRSA through the company Cresud, which he controls. It is not known whether, or to what extent, he leveraged (i.e., borrowed funds at a lower rate of interest than he expected to make) − for the purpose of acquiring control in Cresud, in which he has a 38 percent stake. Cresud is currently trading on NASDAQ at a value of $370 million. Except for its holdings in IRSA, it is an agriculture business of only moderate profitability.
Cresud has land reserves totaling 23 million square meters. It focuses on acquiring grain and cattle farms, and on milk production. A decade ago it was designated Argentina’s biggest meat and grain manufacturer, but the recession years cost it some of the farms in its possession. Additionally, Cresud holds 36 percent of BrasilAgro, which operates in Argentina, Brazil, Bolivia and Paraguay. The group controls another real estate company that is traded on the stock exchange, APSA, which is trading at a value of $50 million in Buenos Aires.
Elsztain seasons these holdings with shares in financial institutions. Cresud holds 30 percent of the shares in Argentina’s biggest mortgage bank, Hipotecario, which trades on the Buenos Aires Stock Exchange at a value of 1.9 billion pesos. Finally, Elsztain is chairman and a shareholder in the Australian mining company Austral Gold.
Despite the scope of Elsztain’s investments, it is not certain he has the liquidity to toss $100 million Dankner’s way without hesitation. However, an examination of his companies’ commitments versus equity capital and cash flow shows that Elsztain did not commit the sin of excessive leveraging that landed his current partner from Israel into the mess in which he finds himself, and his companies are financially stable.
Elsztain made the initial investment in Ganden Holdings through his public companies. IRSA’s annual reports make no mention of Ganden or of any investment in Israel, but they do mention that, in September-October 2012, the company invested $25 million in the Dolphin Investment Fund − through which the investment in Ganden was handled.
It is worth noting another interesting detail that appears in Cresud’s reports, which demonstrates that Elsztain knows how to charge management fees from the companies he controls: Among the risk factors Cresud lists, it mentions that the company pays 10 percent of its profit − based on a special consultancy agreement − to the Dolphin Fund, in which Elsztain has an 85 percent stake.
Considering that both Cresud and IRSA are public companies, Elsztain is taking the money that Argentine and American workers have invested in his companies for their future retirement for his own speculative investment, the object of which is to salvage Dankner’s control of the IDB group. The investing public in Argentina may be less active than the one in Israel, but still, Elsztain might well be constrained in his ability to continue streaming unlimited funds to IDB.
The stories that depict Elsztain as a modest and approachable man who steers clear of the spotlight make one wonder about the differences between his personality and Dankner’s. From a business standpoint, though, they bear a resemblance: Elsztain is reminiscent of Dankner not only in that he involved a public company in a speculative investment. Like Dankner, in recent years he has had to contend with considerable public criticism. In the case of the Isla Demarchi development in Buenos Aires, the public was angered by the fact that construction of the luxury neighborhood led to the closure of factories in the zone and the loss of factory workers’ livelihoods.
His good relations with Argentine President Cristina Kirchner also attract attention. Kirchner infuriates some of her countrymen because of the wealth that she and her associates have amassed in the time she has been in power (since 2007). The Kirchner administration recently initiated reform in the construction industry, with the aim of encouraging construction of residential apartments. Among other things, the reform includes mortgage-financing breaks for citizens. The fact that this move will benefit the bank Elsztain controls has not escaped the media’s notice.
Elsztain has also come under fire lately from the opposition in Argentina, in connection with the mining company he chairs, Austral Gold, because of the tax breaks the company enjoys.
As if this were not enough, in recent years Elsztain has had to contend with protest rallies outside his offices in Buenos Aires, because of his Zionist activism. These demonstrations recently became more relevant than ever, since Elsztain’s investment in Ganden could spur allegations that it means transferring funds from Argentina to Israel.
Soros’ golden boy
Elsztain’s Zionism has accompanied him from a young age. In the late 1970s, before he took a turn to the Orthodox, he visited Israel on a wild, teen trip. Today he is a major donor to the Taglit-Birthright project, which brings young Anglo Jews on organized tours to Israel, and in the past served as treasurer of the World Jewish Congress. His sister lives in Israel (Elsztain also has two brothers who serve in executive positions within the group, as does a cousin). According to acquaintances, Elsztain has a long-standing dream of taking a year off from his business and coming to Israel to study Torah.
“Perhaps he thought he could come, be nice and save IDB’s business, and the entire people would thank him. He was wide of the mark. Dankner is not a popular figure in Israel these days. He might have connected with more popular characters,” says someone who knows Elsztain.
Even more than Zionism, it seems that the religious-spiritual element is what drove Elsztain to make his investment. Elsztain, who wears a skullcap, lives next door to a synagogue that he built for himself and those who wish to pray with him. At the Abasto mall he built in Buenos Aires, he made sure a mezuzah was affixed to the entrance, and that the place included kosher restaurants and a kashrut inspector. “He is a businessman who cares about each and every Jew − everywhere in the world, not only in Israel. A real tzaddik. The people of Israel matter to him before any benefits. He has a sense of mission that they are unaccustomed to in Israel,” says an Argentine Jew who knows him.
Elsztain was born into a secular bourgeois family. Both his father and his grandfather were real estate developers. He worked in the family business when he was starting out, before heading to New York in 1990, where he talked his way into a meeting with the legendary investor George Soros − who was persuaded to let the ambitious young man manage $10 million for him. Elsztain managed Soros’ money with great success, and subsequently Soros helped him acquire control of Cresud in 1992-1994, serving as his partner in the company for many years − a partnership that was dissolved long ago.
In his dealings with Soros, a meeting took place that proved no less significant to his business path. Even today, more than two decades after that meeting, they say Elsztain likes to tell the story of how he became religiously observant − thanks to an encounter with the Lubavitcher Rebbe.
To those interested, he recounts that when he was in the United States, he was recommended to turn to the rabbi and receive advice and a dollar coin that would bring blessings to his business. Elsztain recalls how he debated whether to waste $7 on a cab to take him to the rabbi’s house, and in return to obtain the single dollar.
Eventually, when he made up his mind and came to the rabbi for advice, the latter gave him $2 instead of the $1 as expected. When Elsztain asked him why, the rabbi replied: “One dollar for your success, and another so you will donate your money to others.” At a later date, the rabbi advised him to sell his holdings on the stock exchange and focus on real estate, a suggestion that turned out to be well timed. The success of the Lubavitcher Rebbe’s golden advice is possibly what drives Elsztain today, two decades later, to invest in Ganden.
Elsztain remains connected to Chabad circles, but strongest of all is his warm bond with Rabbi Yoshiyahu Pinto. Pinto has deep ties to Argentina, where his father-in-law, Shlomo Ben Hamo, is the chief rabbi. (The pair is currently embroiled in a legal dispute: Ben Hamo accuses Pinto of exploiting him for money-laundering purposes.) Pinto has been behind previous investments of Elsztain’s: He reportedly brokered the deal in which Elsztain bought the so-called Lipstick Building in Manhattan from Ilan Ben Dov, as a result of which Elsztain became the partner of another businessman close to Pinto − Jacky Ben Zaken.
Dankner and Elsztain first met years ago, when the former was visiting Argentina, but the basis for the present business connection is courtesy of Dankner’s close ties to Pinto. Not only was Pinto the one who arranged the first meeting between him and Elsztain, but he also continued to serve as a go-between in additional meetings over the past year − some of which were held at Pinto’s home in Ashdod.
A source who has conducted business with Elsztain in the past says that Pinto “makes a very serious impression,” but that Elsztain is “not one to donate money for no reason. Maybe the Pinto story aids in the investment, but Elsztain is not going to get his company invested at sums like that without deep thought beforehand.”
Another friend from the Chabad community says that Elsztain is too smart simply to follow the rabbi’s lead. “There’s no way it works like that where the rabbi tells him, ‘Do this or that,’” he says. “Even if he gives money, he won’t just give and walk away. He’d be a partner and he would have many opinions and advice on how to direct the business.” Still, Pinto continues to press Elsztain to advance further toward Dankner.
The rescuer’s dilemma
When the reasons for the investment in Ganden are sought, it seems that Dankner knew to push all the right buttons: Elsztain’s Zionism and desire to get involved in Israel; the belief in the wisdom of rabbis; and the tendency to look for investments precisely in those places all the other investors flee.
From the moment Elsztain showed an interest in the company − and more important, from the moment he transferred the initial sum − Dankner traveled to Argentina time and again to pressure him to transfer the rest of the money. Senior Bank Leumi officials came to Buenos Aires to gauge whether Elsztain was serious in his intentions of investing with Dankner, and to ascertain from that how they should deal with Dankner regarding his debt to the bank. The events of recent weeks, in which employees of the IDB group demonstrated in support of Dankner and the heads of local authorities held press conferences in his honor, have not gone unnoticed by Elsztain.
As of now, Elsztain is in a catch-22 situation: Unless additional funds are transferred, the odds are that the $25 million he invested in Ganden will go down the drain, so he must decide whether to cut his losses or throw good money after bad.
A transfer of an additional $50 million or $75 million is a substantial sum to take out of IRSA. The company’s working capital totals 212 million pesos, which is approximately $40 million. This is apparently the reason Elsztain is trying to recruit other investors in New York to join him in the investment.
If he succeeds, it is possible he will advance together with them in Ganden’s direction. If not, perhaps he will seek more spiritual answers. Like in the story of the deer on Isla Victoria.