Elsztain Funding Offer Lifts IDB Development Corporation's Outlook

Conglomerate's shareholder has offered to put up to nearly $141 billion into indebted company.

Daniel Bar On

The future of IDB Development Corporation, the holding that sits at the apex of the IDB group, is suddenly looking brighter, at least from the point of view of the stock market.

IDB shares have skyrocketed 30% in the past two days, boosting its market capitalization to 501 million shekels ($129 million). On Tuesday, IDB bonds jumped 8.6%, which reduced their yield to a (still hefty) 12%.

Behind the market’s excitement is an offer made by Eduardo Elsztain, one of IDB’s two controlling shareholders, on Monday to inject up to 550 million shekels of new capital into the company through a rights offerings and other measures.

As of Monday, IDB’s board hadn’t specifically responded to the proposal but it did appoint a committee to arrange one or more rights offerings as soon as possible and said it was exploring an option of issuing convertible bonds, in which Elsztain and his partner, Moti Ben-Moshe, would participate.

If it were matched by Ben-Moshe, Elsztain’s proposal, which was made through a company he controls called Dolphin, would give IDB enough cash to meet all its debt commitments up through the first quarter of 2016.

The holding company, whose assets include such marquee companies as Supersol and Cellcom Israel, lost two opportunities to raise badly needed cash in the last half year: It failed to reach a deal to sell most of its stake in Clal Insurance to a Chinese investor group, while its Adama agrochemicals affiliate pulled a planned initial public offering that would have yielded the group $200 million in cash.

It is not clear, however, whether Ben-Moshe will contribute an equal amount to shoring up IDB’s balance sheet. The two investors – one the heir to an Argentinian real-estate fortune and other a self-made Israeli entrepreneur – won control of IDB from Nochi Dankner in a bailout agreement a year ago.

Since then the two have been reportedly at odds – and Elsztain’s cash-injection plans seems to have become another point of contention.

Sources close to IDB told TheMarker that Ben-Moshe has the cash to match Elsztain’s offer, but they said he would rather solve IDB’s cash needs in other ways. Instead, he would prefer to work to upgrade the holding company’s assets, such as Supersol and Cellcom. To raise cash, he would prefer to sell Clal Insurance, or alternatively give the Clal shares to IDB creditors to repay debt.

If he doesn’t agree to Elsztain’s proposal, Ben-Moshe could act on a buy me-buy you agreement the two have and sell his IDB shares to Elsztain, who sources say has the resources to fund IDB through 2015 and 2016 by himself.

Elsztain reportedly believes that Supersol and Cellcom might have potential for improved profits and valuations, but only if the challenges of increasingly tough competition in their industries and growing regulatory scrutiny over them can be resolved first. More potential, he believes, lies with Clal Insurance and IDB’s real estate unit, Property & Building Limited.