IDB Development’s directors approved a 1.1-billion-shekel ($280 million) capital injection on Thursday, answering to pressure from creditors on one of Israel’s biggest conglomerates.
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At the heart of the plan is a rights offering through which existing shareholders can buy shares worth a total of 800 million shekels.
Approval also came following a week of maneuvering between the two controlling shareholders of the group that contains supermarket chain Super-Sol, cellular service provider Cellcom and Clal Insurance.
The 1.1 billion shekels will be enough to let IDB meet its debt obligations through the first quarter of 2016, time it will use to help revive some its flagging companies and sell others, most notably Clal. Or the fresh cash could leave IDB strong enough for the commissioner capital markets, insurance and savings to grant it an insurance license and retain control of Clal.
The plan for IDB Development was proposed by Argentine businessman Eduardo Elsztain, one of two controlling shareholders along with Moti Ben-Moshe, who made most of his fortune in Germany and has roots in the former Soviet republic of Georgia.
Outside directors were under particular pressure to agree to the plan. In the end, seven of the nine directors supported the motion, which was submitted by Elsztain’s Grupo Dolphin SA and would have expired Thursday had it not been accepted.
The cash injection is expected to remove the going-concern warning from the company’s financial reports, a distinction suggesting that IDB Development might not be able to stay in business.
For the past several months, Elsztain had spoken with the board about the need for capital, but he may have feared Ben-Moshe would push other proposals including the conversion of some of IDB Development’s debt into shares of Clal.
Ben-Moshe was also said to be pushing other moves in cooperation with board members but without taking Elsztain’s views into account.
The rights issue therefore may be an attempt by Elsztain to keep a step ahead of his partner, even though the latter is more familiar with the details of IDB’s operations. Elsztain may be hoping that Ben-Moshe does not have sufficient funds to maintain his stake in IDB Development.
Ben-Moshe and Elzstain each hold 31% stakes in the company, but Ben-Moshe has not yet committed to participate fully in the rights offering and it is not clear what he will do. If he does not fully exercise his right, his stake will be diluted.
Last Monday, Ben-Moshe criticized Elsztain’s plan after it was reported to the Tel Aviv Stock Exchange. A Ben-Moshe spokesman called it a publicity stunt and a cynical step that would harm IDB Development’s minority shareholders.
Following consultations with advisers, Ben-Moshe decided not to submit a counterproposal. Instead, he voted in favor of Elsztain’s plan.