The Israel Securities Authority's investigation of Nochi Dankner on fraud charges comes at an awkward time for the tycoon, who faces a tight deadline from bondholders to meet their demands or risk losing control of his IDB Holding Corporation.
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The bondholders are demanding that IDB enter debt settlement talks and that Dankner inject NIS 600 million of his personal wealth or outside sources. The beleaguered tycoon, however, is not believed to be capable of coming up with such a large sum at this point.
An even more pressing demand is for Dankner to pay the NIS 65 million interest due on IDB's Series Dalet bonds on December 20 with money obtained outside the company rather than by drawing down on its cash holdings. A NIS 35 million payment to Series Bet bondholders that was due in September was funded through a rights issue about a month ago.
The bondholders, represented by attorney Israel (Reli) Leshem of Meitar Liquornik Geva & Leshem Brandwein, have also insisted that any additional capital injected by Argentine investor Eduardo Elsztain into IDB Holding's closely held parent company, Ganden Holdings, be put directly into IDB Holding. In September Elsztain bought a 10% stake in Ganden.
Dankner's entanglements have sent IDB Holding's share price plunging over the last two days. On Tuesday it dropped 10.2% and yesterday another 5.1% to a close of NIS 13.65, cutting the holding company's market capitalization to about NIS 662 million.
While IDB Holding has not yet acceded to any of the demands, the bondholders are thought to be preparing to petition the courts for a restraining order in the next few days against the company carrying out its interest payment to Series Dalet bondholders. The deadline for IDB to make the payment is December 6, lending urgency to any action.
The bondholder representatives include Harel-Pia Mutual Funds, Gilad Pensions for Religious Workers, and the Excellence Nessuah and Psagot investment houses.
Two weeks ago Leshem met with attorney Ram Caspi, who is representing IDB Holding and Dankner. In the meeting, Leshem insisted that IDB Holding sign a standstill agreement to dictate the company's actions until a debt settlement is arranged.
Dankner says he expects that Elsztain will exercise his option to buy another 21% of Ganden for $75 million, increasing his stake to 31%. But this would probably need the approval of the Finance Ministry's commissioner of capital markets, Oded Sarig, since it could make Elsztain a controlling shareholder of Clal Insurance, an IDB-controlled company. But Dankner made it clear that most of the proceeds would remain in Ganden and not be transferred to IDB.
Banks watch on nervously
Ganden has bank debts totaling about NIS 580 million - about NIS 500 million to Bank Leumi and the rest to Mizrahi-Tefahot Bank. Tomahawk Investments, Dankner's privately-held company that wields control over Ganden, owes about NIS 100 million to Israel Discount Bank.
Leumi and Mizrahi have already made provisions against Ganden's debts but hold IDB Holding stock as security as well as personal assets belonging to Dankner and his family. As far as is known, Dankner gave the banks personal guarantees as well. He presumably wants to pay off the bank debts and get rid of the guarantees before injecting any more funds into IDB Holding.
Leumi and Mizrahi have been anxiously following developments but so far have refrained from demanding a cashing-in of the guarantees. Leumi CEO Rakefet Russak-Aminoach went so far as to meet with Elsztain when he visited Israel several weeks ago to assess any intention by him to increase his investment in Ganden.
The bondholder representatives have also demanded the application of corporate governance rules on IDB Holding and IDB Development before approval by bondholders. These touch on interested party transactions, board appointments, external director appointments, and the appointment of an observer.
The far-reaching demands by bondholders place Dankner in a dilemma by threatening to restrict his ability to maintain control over the company. Meanwhile, the Securities Authority's investigations could make matters worse and torpedo any chance of Elsztain putting more capital into Ganden.
Dankner's hopes of raising cash with a loan from the American buyout fund KKR also seem to have evaporated. The fund has broken off contacts with IDB over a possible loan of $200 million to $250 million. The loan, which would have been for an average term of four years, would have carried steep interest of 15% or more.
The loan would have been used to buy full control of the group's Koor Industries, which would have given Dankner access to Koor's NIS 2.3 billion cash horde.