Bondholders acted on a long-standing threat and on Wednesday asked the Tel Aviv District Court to put IDB Development Corporation – the holding company whose holdings include Cellcom Israel, Clal Insurance and Super-Sol – into liquidation.
The move came after holders of IDB Series Tet bonds, who hold some 1.35 billion shekels ($350 million) of the conglomerate’s debt, failed earlier in the day to reach an accord with management and its controlling shareholder, Argentinean Eduardo Elsztain, on repayment terms.
Elsztain has been struggling to turn the IDB group around since he gained control of it in a debt bailout from Nochi Danker, pumping some 1.6 billion shekels of his own capital into the holding company to get a handle on its huge debt.
On Wednesday, IDB Development shares closed down 0.4% at 82 agorot, leaving it with a market cap of about 910 million shekels. The company issued a brief statement in response to the suit, which said: “We are confident that the justice system will act in a businesslike way for the good of everyone who has a stake in the company and justice will prevail.”
The Series Tet bondholders had sought to equalize repayment terms for their longer-term debt with investors holding Series Zayin and Vav bonds, and to get better collateral on the debt. The Tet bondholders turned to the court less than 10 days before IDB Development was due to make a 373 million-shekel payment on the Series Zayin bonds.
“We’re not talking about a theoretical discussion – the company is insolvent,” Guy Gissin, the attorney representing the Tet bondholders, told the court.
He cited the Finance Ministry’s order for IDB Development to sell off its 55% controlling stake in Clal Insurance in 5% blocks as an example of the holding company’s woes. “This will mean that the most important asset of the company will be sold at below the market price, which will further deepen the insolvency problem,” Gissin said.
A day before, IDB Development reported it had a 48 million-shekel first-quarter profit, down 62% from a year earlier. The company benefited from a 192 million-shekel contribution from its Discount Investment Corporation unit, which controls Cellcom and Super-Sol among others.
But Clal Insurance contributed a 132 million-shekel loss and auditors attached a “going concern” warning to IDB’s financial statements, meaning they aren’t confident it can avoid insolvency. At the end of March, IDB had net financial debts of 2.73 billion shekels and was short 258 million it needs to meet all repayments due this year.
In 2017, IDB is expected to need 838 million shekels if it is to meet debts due that year. The company said it believes the funds to cover the shortfalls for 2016 and 2017 will come from the sale of Clal Insurance and closely held assets.
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