Nochi Dankner, the controlling shareholder of the indebted IDB group, suffered two blows this week as his IDB Development company received a “going concern” warning from its auditors, while Bank Leumi called in some NIS 450 million in loans in his Ganden Holdings.
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Dankner signaled his determination to fight to retain control of the IDB group, offering bondholders improved terms. The “going concern” warning − which signals that auditors are not confident the company can remain solvent − came in IDB Development’s first-quarter financial reports, filed just before the regulatory deadline of midnight May 31.
IDB Development is carrying about NIS 4 billion of bondholder debt and owes another NIS 1.9 billion to banks and other financial institutions. The company has sought to play down its financial problems by saying the real obstacle to continuing its business is an effort by bondholders to wrest control of the company through a debt-for-equity swap.
IDB Development warned in advance that a “predatory” foreign fund that purchased IDB Development bonds at rock-bottom prices is leading an effort at a hostile takeover by creating uncertainty about the company via extreme legal methods.It asserts that this is what is preventing management from coping with its debt problems.
Bondholders of IDB Development and its parent company, IDB Holding, agreed late last month on terms for the debt-for-equity swap, with American hedge fund York Capital taking a leading role. However, they need the approval of a court to proceed and have yet to convince bank lenders to sign on to the deal. IDB Holding itself owes about NIS 2 billion to bondholders and banks.
IDB also reported in its quarterly financial report that Leumi had demanded immediate payment of debt owed the bank by Ganden Holdings, the privately controlled firm through which Dankner controls IDB Holdings Corporation.
Ganden is believed to owe Leumi about NIS 450 million, secured by a lien on nearly 31% of IDB Holdings’ shares. IDB Development said the bank took the step on April 19, after the bank was forced, under public pressure, to retract a plan to reschedule and write off a substantial portion of the loan.
At stake for the IDB group is control of some of Israel’s biggest and best-known companies, including Cellcom Israel and the Super-Sol supermarket chain.
Faced with a mounting threat to his control of the group, Dankner responded late yesterday with a new offer to bondholders for rescheduling his debt and handing over some shares in the group.
The new offer came after Dankner returned Friday from New York, where he held a series of meetings with Eduardo Elsztain to coax the Argentine businessman into injecting more funds into IDB group.
Last September, Elsztain put some $25 million into Ganden and agreed, in principle, to add more. Under the IDB Holdings plan, Elsztain will invest about $75 million − about NIS 280 million − directly into IDB Holdings, on condition that the company comes to terms with its bondholders. That is in contrast to a prior plan, which provided for Elsztain to invest $57 million in IDB Holdings and $18 million in Ganden.
In addition, Dankner, Elsztain and perhaps IDB’s other controlling shareholders will put another NIS 375 million into the company through an issue of new shares, which will go toward paying bondholders some of what they are owed. Another NIS 165 million in cash the company has on its books will also be paid out to the bondholders.
The controlling shareholders will have to put more money into the company next year and have vowed to raise another NIS 400 million through new capital injections as well as from the sale of assets, such as Clal Insurance.
In return, the bondholders will have to write down NIS 720 million of their debt, but will, as partial compensation, get 10% stakes in IDB Development and Holdings. From the perspective of creditors, the major advantage of the proposal over the plan formulated by bondholders last month is an injection of cash by the controlling shareholders and a bigger immediate cash payout.