The fate of the IDB Group won't be decided until Sunday morning, Judge Eitan Orenstin said on Thursday after attorneys duked it out over a bondholders' plan to wrest control of Nochi Dankner's indebted holding company.
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The Tel Aviv District Court on Thursday was overflowing with lawyers, interested parties and observers. Dankner himself was in attendance as was Eduardo Elsztain, the Argentinean real estate mogul who has promised to invest $75 million into the IDB Group to help it repay some of its NIS 9 billion in debt.
Hagai Olman, an attorney at Yehuda Raveh & Company who was appointed an outside observer for the IDB Development Corporation, a subsidiary, told the court that time was running out for IDB.
"The company's financial disarray is such that if no solution is found within a few months, it will become insolvent. The company will rise or fall on whether it can raise capital," he said. "It needs quiet in order to do that."
By September, if IDB Development hasn't raised additional capital or sold its Clal Insurance unit, the biggest of its assets up for sale, it will have to "hand over the keys to the company" to its creditors, he said.
A debt-for-equality swap would entail bondholders, erasing some NIS 3.4 billion of the debt that IDB owes them in exchange for a 55% stake in the company.
Olman had harsh words for both the bondholders – which are led by York Capital of the United States, the Psagot Investment House and Phoenix Insurance – and for IDB's management. He proposed that the two sides reach a mutually acceptable plan as quickly as possible.
IDB Development's bondholders last month proposed a debt-for-equity plan, which Orenstin will have to rule on, that would leave them in control of both IDB Development and its parent company, the IDB Holding Corporation.
The IDB group, which Dankner has controlled for the past decade, includes many of Israel's best-known companies, among them Cellcom Israel and Super-Sol.
"The framework that the bondholders' representatives have proposed isn't sufficiently balanced," Olman said. "For one, they are asking to be handed the keys to the company by converting debt into equity even though some of the creditors aren't interested in this. That's problematic, especially as the company isn't insolvent."
Olman criticized how the company has been managed, including directors who have conflicts of interest and an overly centralized management structure.
"The company has been dragged into debt arrangements proposed by its bondholders or banks. Its [management] isn't initiating solutions but is being dragged along and isn't taking any of the practical measures it needs to arrive at a solution," Olman said.
He cited as an example, IDB's efforts to sell its stake in Clal Insurance as a means of raising cash that it could use to repay creditors. Olman said two acceptable offers had been made for the insurers and bondholders were alerted to this so they could ensure their rights vis-à-vis any sale.
"But they sometimes have taken steps that are causing damage to the company and its creditors. When they demand something that isn't acceptable to all the creditors, we end up going backwards rather than advancing," he complained. "There are no direct discussions [between the two sides], which is surreal. I mean this as a criticism of both sides."
Attorney Zuriel Lavie, representing IDB Development, said bondholders had no right to seek control of company that still not declared insolvent. And he called into question Olman's appointment as an outside observer last April as an unnecessary interference in the company's management that might set a bad precedent.
Nadav Weisman, who is representing the IDB Holding bondholders, asked that a meeting of bondholders take place in 45 days, at which point they will have a single, detailed proposal for a bailout plan for the IDB group. Orenstin dismissed the idea as taking too much time.
Meanwhile, Lavie said IDB Development was working on a debt plan of its own, which Orenstin also questioned, saying it simply added to the plethora of competing proposals.
He said the company wants too much time to get its financial affairs in order. To which Lavie, responded concerning the test for a company to meet debt repayments, "The experts say that time and cash is what is needed. Declaring a company insolvent relates to a legal standard that ranges between three months and one year."
Lavie said bondholders can wait until October to see whether IDB succeeds in selling Clal Insurance.
As to the bank creditors, Pinhas Rubin, the lawyer for Bank Hapoalim, said they had no proposal of their own right now, apart from recognizing that IDB would have to reschedule debt . But Rubin said he was skeptical about the bondholders' proposal.
"I think that the bondholders' proposal is destined to be a legal and financial failure," he said.