Fateful Hearing: IDB Group Facing Off Against Creditors

Judge Eitan Orenstein is scheduled to rule on the fate of country’s largest business group owned by Nochi Dankner, which owes creditors NIS 8 billion that it most likely cannot pay.

The country’s largest business group is scheduled to face off against bondholders in a fateful hearing in the Tel Aviv District Court Thursday morning.

Judge Eitan Orenstein is scheduled to rule on the fate of Nochi Dankner’s IDB group, which owes creditors NIS 8 billion that it most likely cannot pay.

Dankner is likely to be accompanied by IDB Holding Corporation CEO Haim Gavrieli and Jewish Argentinian businessman Eduardo Elzstain, who has offered to invest in the company. They are hoping for another chance to come to an arrangement with creditors that would leave them in control.

The bondholders for their part are clamoring to seize IDB, whose main assets include household names like cellphone company Cellcom and grocery story chain Super-Sol, as well as stakes in Clal Insurance and Swiss banking giant Credit Suisse.

Among other questions Orenstein will have to decide today or in later hearings is whether IDB should pay bondholders NIS 800 million it owes them in payments due this month and next, or whether this is favoring some creditors over others. After those payments, the group will be left with a mere NIS 300 million in its kitty.

The judge will also have to decide whether to enable a creditors’ meeting to vote on the bondholders’ proposal. If that proposal is approved, then Dankner and his partners in the IDB group − the Livnat and Manor families − will lose control over IDB and be exposed to lawsuits.

Ultimately, Orenstein will be ruling on whether IDB is insolvent, as bondholders allege, or solvent, as Dankner claims.

There are four potential outcomes from today’s hearing. The most likely one is that Dankner will receive an extension to clarify his offer to extract IDB from its crisis. Dankner is likely to try to convince the court that he can offer bondholders an arrangement preferable to the plan that calls for them seizing control. The bondholders rejected an offer he made this week, but he’s still working on it. According to such a scenario, the court is likely to ask Dankner to provide concrete explanations as to how he’ll save the company.

Another possibility, this one somewhat less likely, is that the court will rule that IDB is insolvent and order a meeting to vote on the bondholders’ takeover plan. This would be the most dramatic of the potential outcomes.

Should the court find that IDB is close to insolvency and that Dankner’s proposals are unclear and uncertain, the bondholders’ proposal will be the next order of business. If it determines that this proposal is likely to save the company, it will call for a vote to approve the process and also take steps to ensure that other creditors − namely the banks − don’t undermine it. However, it is likely that the court will want to give Dankner another chance before taking such a dramatic step.

There are two other potential outcomes, but they’re highly unlikely. One is that the court will rule that the company is solvent and reject the bondholders’ proposal outright. But IDB’s own auditors attached a going-concern warning to its most recent financial reports, which also contained dismal forecasts for the company, making this court decision unlikely.

Another distant possibility is that Orenstein will find IDB insolvent and order it liquidated.

Moti Milrod