New Offer From Nochi Dankner Would Give Investors a Haircut of Around NIS 600 Million

IDB group controlling shareholder looks to join Israel's ever-expanding 'tycoon barber club,' but will banks and bondholders bite?

Up until just a few months ago Nochi Dankner, the chairman and controlling shareholder of the IDB group, was still insisting that IDB would meet all its payment deadlines despite its financial woes. But notwithstanding his promises Dankner has just joined the honorable ranks of the Israeli businessmen who have recently or are currently carrying out "haircuts" in the companies they control. This ignominious list includes Yitzhak Tshuva, Ilan Ben Dov, Yosef Maiman and Leon Recanati.

At a meeting between representatives of IDB bondholders and the corporate group on Monday, IDB executives proposed a new debt restructuring plan. It followed an earlier proposal that was rejected outright by Harel-Pia Mutual Funds, Gilad Pensions for Religious Workers and the Excellence Nessuah investment house.

The new offer is an improvement over the previous one but still contains a hefty investor haircut, in the neighborhood of NIS 500 million to NIS 700 million. In addition, there is no guarantee that the amount of the promised cash injection for the IDB will be met.

IDB’s overall debt stands at NIS 2.05 billion. It owes NIS 155 million to Credit Suisse (of which IDB group member Koor Industries owns 2.3%) and NIS 125 million to Bank Leumi. Ganden Holdings, the parent company of IDB, owes Leumi NIS 450 million-NIS 500 million. The balance of IDB’s debt, NIS 1.75 billion, is owed to bondholders. IDB Holding Corporation's available cash reserves currently stand at only around NIS 200 million.

IDB’s new proposal, which it presented to its creditor banks as well as to bondholders, would distribute the available cash between the two, in proportion to what it owes to each of these groups, and wipe out the old debt of NIS 1.75 billion. In its stead, the company will issue a new bond series worth NIS 1.4 billion, with step-up annual interest rates reaching 4%, linked to the index and maturity reached between 2018 and 2025. The hope is that the postponement of repayment will give the IDB group time to increase the value of its other assets such as Cellcom, Clal Insurance, Super-Sol, its Credit Suisse stake and Property and Building Corporation (Nechasim Ubinyan), which all occupy lower layers of the IDB pyramid.

As security for the proposed deal, IDB Holding Corp. is offering to put a lien on 51% of its shares in its wholly-owned subsidiary IDB Development Corp. IDB Development itself faces serious challenges: It owes NIS 6.5 billion to bondholders and financial institutions and has assets worth less than that. The proposed deal would give IDB Holding Corporation the right to redeem at any time part or all of its debt, at its full value at the time.

With the signing of the deal, IDB Holding Corp. is offering to transfer 10% of its shares, nominally worth NIS 53 million, to creditor banks and bondholders. But given the company's dire straits it is unclear what these shares are really worth. These shares can be viewed as an option based on the company’s recovery. In practice, the whole deal amounts to wiping out NIS 350 million of IDB’s debts (reducing them from NIS 1.75 billion to NIS 1.4 billion).

In addition, IDB Holding Corp. is promising to inject NIS 140 million into its coffers by the time the deal is signed, in late March or earlier. There is no certainty that these funds will materialize. They depend entirely on the Argentinian businessman Eduardo Elsztain, who is supposed to notify IDB by late February of his decision regarding realization of his option to transfer NIS 75 million to Ganden, the controlling company of IDB. So far, Elsztain has given Ganden no such assurance.

Ilan Assayag