Eduardo Elsztain Raises Bet on IDB Group to $420 Million

Argentine tycoon now committed to injecting more than a billion-and-a-half shekels into financial troubled holding group.

Daniel Bar On

Eduardo Elsztain, the Argentine tycoon poised to take sole control of IDB group next week, is deepening his bet on the future of the highly indebted conglomerate to 1.6 billion shekels ($420 million) – a figure likely to grow further still.

Dolphin, the company through which Elsztain controls IDB, said Monday it would invest another 100 million shekels into IDB Development, the holding company at the apex of the IDB pyramid.

The latest influx of cash means that Elsztain will have committed to putting some 750 million shekels into IDB this year alone – 100 million as part of an earlier commitment to invest in the company in October-November, 391 million that he injected into it earlier this year via a rights offering, and 150 million he forked over in June.

Over the 14 months since he and Moti Ben-Moshe wrested control of IDB from Nochi Dankner as part of a debt bailout, Elsztain has spent an additional 800 million shekels injecting money into the holding group and to bondholders. If his negotiations to buy out Ben-Moshe end successfully in the next few days, he will pay Ben-Moshe about 152 million shekels for the latter’s remaining 16% stake.

All told, Elsztain has committed 1.6 billion shekels to IDB to date, leaving him with paper losses of some 700 million shekels. Shares of IDB Development dropped 5% on the Tel Aviv Stock Exchange Monday to 1.93 shekels, leaving it with a market cap of 1.28 billion shekels, valuing Elsztain’s stake at about 860 million shekels.

But only next Tuesday will Elsztain gain effective control of the IDB Development when a shareholders’ meeting is scheduled to remove Ben-Moshe and his representatives from the board of directors and replace them with Elsztain’s picks.

Elsztain’s cash influx isn’t over as he conducts a juggling act to satisfy a big audience of creditors.

Next October he is supposed to inject a further 200 million shekels to IDB. Half of that will be going to IDB’s Discount Investment Corporation unit, the company that controls key assets like the food retailer Super-Sol and mobile provider Cellcom Israel as part of a 500 million-shekel rights offering.

IDB Development is supposed to participate in the Discount rights offering, which includes four series of warrants to be exercised over the next four years, to the tune of 93 million shekels.

But IDB Development has to get approval from its bank creditors, to whom it owes some 900 million shekels. Before they agree, they are waiting for Discount’s turnaround program, which is due to be completed soon. Both Cellcom and Super-Sol are suffering deep economic problems.

IDB is only joining the Discount fundraising because its bondholders pressured Elsztain to act. Discount is supposed to join in a rights offerings by Cellcom of between 100 million and 150 million shekels, but Discount’s bondholders demanded that the money come from Discount’s parent company, IDB Development.

Discount is in a delicate financial state. It owes bondholders 4.3 billion shekels and banks another 550 million shekels. Discount has only about 1 billion shekels of cash on hand to cover debt repayments through November 2016.

It is also due to make an interest payment of 240 million shekels to China National Chemical Corporation (ChemChina) for a $1.1 billion loan IDB took when it sold to the Chinese company control of Makhteshim Agan four years ago. With Discount’s bonds trading at yields of 10% to 16%, the company has no hope of recycling its existing debt.

IDB Development is not much better off, carrying 3.7 billion shekels of debt. The holding company is hoping to complete the sale of its 55% stake in Clal Insurance by the end of the year to raise money; failing that, it will be short 814 billion shekels to meet all its repayment obligation for 2016.

Ben-Moshe’s exit may cost Elsztain more. As part of their negotiations, Ben-Moshe is seeking to be freed from a commitment to buy out minority shareholders in IDB for 256 million shekels over this year and next.