After failing to reach an agreement with three groups of bondholders Monday, Argentinian tycoon Eduardo Elsztain appeared to be on his way to losing control of his IDB Development Corporation holding company and its sister company Discount Investment Corporation.
Holders of IDB development’s Series Tet, Yud-Dalet and Tat-Vav bonds voted to demand immediate repayment of 2 billion shekels ($580 million) owed them.
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Unless the two sides reach a last-minute agreement, the Tel Aviv District Court will soon begin the process of appointing officials to liquidate IDB assets to repay creditors, which include the Brosh and Alpha hedge funds and institutional investors Psagot, Harel, Yelin Lapidot and Meitav Dash.
IDB Development itself has few assets, but it does own the Israir airline, 5% of Clal Insurance, Las Vegas real estate and a stake in Modiin Energy. Elsztain, who is coping with the economic downturn in Argentina and has already sunk 3 billion shekels of his capital in IDB, is unlikely to move to stop the asset sale.
However, he is likely to fight to retain control of his stake in Discount Investments, of which 70% is held by Series Yud-Aleph bondholders as collateral. Thus, if the company is put up for sale by the court, Elsztain may seek to buy it back.
In talks with the Yud-Dalet bondholders, Elsztain, who controls 82.3% of Discount, offered them the 70% as well as an immediate repayment of 400 million shekels of the 900 million owed them. The balance would be repaid in installments through 2026.
Discount is no longer the giant holding company it was a decade ago, when it had a market cap of some 5 billion shekels. Today, it has four principal subsidiaries – 74% of real estate company Property & Building, 46.1% of mobile operator Cellcom Israel, 43.7% of a second property company called Mehadrin and 61% of holding company Elron.
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Selling its remaining 26% stake in Shufersal, Israel’s biggest supermarket chain, generated 1.46 billion shekels, boosting Discount’s cash holdings to 2 billion shekels. That gives it the ability to repay, at least for the next two years, the 3.3 billion in debt its owes, mainly to its Series Yud and Vav bondholders, without having to tap debt markets anew.
Nevertheless, the market is concerned about Elsztain’s management and so the bonds are trading at relatively high yields of 8% to 9%.