For the first time since it acknowledged it couldn't repay its debt last September and opened talks with creditors, IDB Holding Corporation has unveiled a plan to restructure its bond debt. The company seeks to stretch out repayments by as much as 15 years in return for a NIS 180 million payment up front.
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Trustees representing the bondholders reacted angrily to the offer, which was made late on Sunday.
"IDB's debt arrangement offer is unacceptable to us and unfortunately is very far away from anything equitable from the perspective of the creditors, to whom it owes NIS 1.7 billion," said one bondholder representative, speaking on condition of anonymity.
IDB sits on the top of Nochi Dankner's business empire, controlling leading companies in industries ranging from cell phone communications to food retailing and insurance. Like other tycoons who borrowed heavily before the global financial crisis, Dankner is having trouble generating cash to meet his obligations, even though much of his business group remains profitable.
"We call on the company to come to the negotiating table with a completely different attitude so we can proceed on the path of a debt arrangement, not some other path," the representative said.
IDB shares fell 2.7% on the Tel Aviv Stock Exchange yesterday while its Series Gimmel and Heh bonds due in 2014 tumbled 4.7% and its longer-dated Dalet bonds dropped 3.3%.
The proposal, which wouldn't require Dankner to provide capital from his own money, counts on the Argentine tycoon Eduardo Elsztain to exercise his option to increase his investment in Ganden Holdings, IDB's closely held parent company.
As part of the proposal, IDB said it would be prepared buy back all its outstanding bonds in the market; in return, it would issue three new series of bonds totaling NIS 1.7 billion, without any additional security.
Redemption of the first bond series, totaling NIS 650 million, would start in five years with five equal payments and inflation-linked interest. It would carry several financial covenants, including the conditioning of dividend payments on leverage restrictions. A 2% interest rate during the grace period would be increased once payments on the principal began.
The second series - also NIS 650 million - would start being repaid in the 10th year, again in five equal installments with interest starting at 2% and rising. It would also carry a phantom option. The third series - again for NIS 650 million - would have both principal and interest repaid in one bullet payment in 15 years. The phantom option would apply to this series as well.
The phantom option is meant to give bondholders the chance to enjoy a rise in value among IDB's six quality assets: Makhteshim Agan, Clal Insurance, Super-Sol, Cellcom Israel, Property & Building Corporation and Credit Suisse. A 50% average increase in value of all six would give bondholders of the latter two series the right to an equivalent of 5% of the gain via IDB Holding stock or bonds.
Besides not requiring Dankner to inject further capital, the proposed restructuring would leave him in full control of IDB without sacrificing anything for the time being.
Bondholder representatives still need to meet and craft their response, but it's hard to imagine them accepting such an offer. "The current proposal won't serve as a basis for negotiations, and we'll be looking into all possibilities at our disposal," said an associate of the bondholder representatives.
The company also presented an alternative plan whereby holders of the two longer-proposed series could be repaid earlier. Finding it hard to believe that Dankner could come up with the full NIS 1.3 billion, a bondholder responded: "We understand that the haircut lies here."
If this alternative is followed up, the sides will need to negotiate how much of the repayments due will be forfeited.