Israeli Markets Anxious About IDB as Managers Flee

Holding group’s CEO says he’s stepping down, and CFO is rumored to be exiting too

Elsztain speaks at a conference held by IDB, Tel Aviv, October 26, 2017.
Shay Shahar

Investors are growing nervous about the future of IDB, the holding group controlled by Argentinian property magnate Eduardo Elsztain, after the CEO of the company at the apex of the group announced plans to quit and the market was rife with rumors that its chief financial officer would be leaving as well.

The market was abuzz with reports on Sunday that IDB Development Limited CFO Gil Kotler, widely regarded as the key executive holding the fort at the financially struggling group, was in talks to join the U.S. unit of Delek Group, the holding company controlled by Yitzhak Tshuva.

The reports had it that Kotler hadn’t made a decision yet. But late on Wednesday IDB did officially report that CEO Sholem Lapidot would be stepping down at an unspecified date.

IDB shares don’t trade on the Tel Aviv Stock Exchange, but its Series Tet bonds, which account for 1.2 billion shekels ($330 million) of debt, drooped 7.1% on Sunday, boosting its yield to 29.5%, or just 50 agorot on the shekel. Its Series Yud-Dalet bonds plunged 7.1% to a yield of 19.6%.

The fears spread to Discount Investment Corporation, a sister company of IDB Development. Its shares dropped 8.2%, marking a 27% drop since the start of the ear. It Series Vav bonds declined 1.8%, raising their yield to 8.5%.

“If Kotler leaves, that’s the end as far as we’re concerned,” said a senior executive at an institutional investor who asked not to be named over the weekend. “Kotler was responsible for stabilizing the situation. The institutions see Elsztain as a puppeteer pulling management’s strings, like it was under Nochi Dankner. This time they don’t want to be seen like that and they’re leaving.”

In addition to the IDB Development executives, Sagi Eitan announced a month ago that he was stepping down as CEO of the group’s real estate development company, Property & Building Limited, after 10 years at the post.

Elsztain bought control of IDB, whose holdings include companies like cellular operator Cellcom Israel and Clal Insurance, in a debt bailout in 2014 that saw Dankner lose control of the group. Since then, however, Elsztain has been struggling to repay the group’s debt. IDB Development has a negative net asset value of 324 million and debt of 2.8 billion shekels.

“Lapidot left for the same reason that Sagi Eitan left Property & Building,” said a source close to IDB management, who asked not to be named. “Elsztain has moved to Israel and decided that a holding group doesn’t need a CEO because every [group] company has its own CEO. Now Elsztain is here and he’s doing the job. All the operating company CEOs are working with him.”

Others, however, are concerned about IDB’s ability to service its debt in the long run. IDB’S announcement about Lapidot ‘s departure didn’t offer any explanation for his surprise move, leaving the market to speculate about the possibility IDB would be undergoing a second debt bailout in five years.

IDB Development has 600 million shekels in cash, enough to meet short-term interest payments, and it gets a quarterly infusion of money from the government-ordered sale of Clal Insurance in blocks of 5%. But with Clal’s depressed share price, the proceeds are less than IDB could be getting.

“It seems that without a dramatic improvement in its core assets, in particular Cellcom or Clal Insurance, the group won’t be able to escape its problems,” said a source close to management over the weekend.

Meanwhile, Elsztain himself has not signalled any plans to inject capital into the group. “Elsztain won’t put any more money in as long as the as the distress isn’t being expressed in a cash flow problem,” the source said.