IDB Development in Advanced Talks to Sell Controlling Stake in Clal Insurance

Buyer is reportedly Chinese firm Hang Lung Group; Tel Aviv court last month set a late August deadline for IDB to sell its stake in Clal.

A Chinese investor – reported to be the Hang Lung Group – is in advanced talks to buy a 30% stake in Clal Insurance Enterprises Holdings, the insurer's majority shareholder IDB Development Corporation announced Wednesday.

The deal is for NIS 1.38 billion, says IDB Development, which would value Clal insurance at NIS 4.6 billion. That's a 24% price premium over its share price at Wednesday opening.

Both IDB Development and Clal belong to the IDB group of companies, which is controlled by the besieged Israeli tycoon Nochi Dankner.

The business group and Dankner have been struggling to pay off debts to bondholders. IDB Holding, the company at the top of the pyramidal group, owes bondholders NIS 2 billion shekels and IDB Development owes a further NIS 5.8 billion.

IDB Development said the conditions of the sale would give the Chinese company control of Clal. As part of the potential agreement, IDB Development will be given a put option to sell its remaining 25% stake in the insurance company to the Chinese, while the Chinese investment group would also have the option of buying out IDB Development's remaining stake.

IDB Development did not provide further details regarding the terms of the agreement or the how it would be financed, saying that it was still uncertain if the deal would be signed and that its terms could be altered.

"There is no guarantee that a binding agreement will be signed between the parties or that one will be signed according the above conditions," IDB said in a statement to the stock exchange on Wednesday. IDB did not name the potential buyer but the Hang Lung Group was mentioned in Israeli business reports.

Last month, Tel Aviv District Court Judge Eitan Orenstein ordered IDB Development to sell at least half of Clal's shares at value of at least NIS 4 billion by August 22, 2013, as part of the company's recovery program. The international brokerage firm AON Benfield is aiding in the sale.

As part of IDB Development's sale of Clal, potential investors have been able to meet with senior management at Clal starting from Monday (July 22) until August 7. After that date, formal acquisition and shareholder agreements will be made, including sources of financing.

If IDB Development completes the sale of at least a 50% stake in Clal, it will buy the company some time, at least until the end of 2014. However, it won't solve the larger financial problems of parent company IDB Holding Corporation and Dankner's privately held companies Ganden Holdings and Tomahawk Investments, all of which are undergoing liquidation proceedings.

Dankner has been busy trying to find investors who can provide the hundreds of millions of shekels he needs to meet his debt-restructuring agreement with the court, including an NIS 800 million payment due to bondholders in the near future. By the end of this week, Dankner must present collateral and loan guarantees worth NIS 500 million to meet the terms of the agreement.

If it comes to fruition, the sale of Clal Insurance would be the second big deal IDB has made with China. In October 2011, the group sold pesticides maker Makhteshim Agan Industries to the government-controlled China National Agrochemical Corporation.

Tomer Appelbaum