The controlling shareholder of the IDB holding group, Eduardo Elsztain, has come to an agreement to inject additional funds into the group’s firm, IDB Development Corp., to head off the prospect of a “going concern” warning by accountants. Such a warning would raise questions on the accountants’ part as to whether the company would be able to continue operating.
To avoid losing control of IDB and a long-term and painful debt settlement, Elstain has informed IDB Development that he will inject 210 million shekels ($59 million) into the firm over the next two years.
The commitment will be backed by a guarantee from IRSA, Argentina’s largest real estate company, which Elsztain controls. IRSA’s market valuation has dropped sharply recently and is trading at a market cap of about $350 million.
This month marks seven years since Elsztain, an Argentinian Jewish investor, initially acquired a 10 percent stake in Ganden Holdings – the company through which Nochi Dankner and his partners controlled IDB at the time – for 100 million shekels. The investment in IDB, which includes such iconic Israeli companies at Shufersal supermarkets, the country’s largest grocery chain, and Cellcom Israel, the cellular service provider, has caused Elsztain no end of grief. His losses are now approaching 3 billion shekels.
Of his new 210 million shekel commitment, 110 million will be paid out in the near future. In light of the company’s relatively brisk cash flow from the sale of shares of Clal Insurance, IDB Development has managed to convince its accounting firm, that there is no need, at least for the time being, to include a going concern warning in the company’s 2nd quarter financial report.
As of the end of June, the company had negative shareholders’ equity of 418 million shekels, despite the fact that over the past two years, it has received a capital injection of nearly 2.5 billion shekels.
The decision by Elsztain and investor Moti Ben-Moshe to take control of IDB Development in 2014 without wiping out its debt is regarded as one of the reasons for the sorry financial state of the company.