A symbolic step in the transfer of financially troubled IDB group took place recently when IDB Development’s new chairman, Aharon Fogel, took over Nochi Dankner’s swank office near the top of a Tel Aviv skyscraper.
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Fogel will have an important visitor this week: Argentine businessman Eduardo Elsztain, the new controlling shareholder along with Moti Ben-Moshe. Elsztain will be meeting with IDB Development’s banks in a bid to change the terms of the company’s debt.
IDB Development’s shares were delisted by Dankner, but they are likely to return to the Tel Aviv Stock Exchange, and IDB Development is taking IDB Holding’s place at the top of the group. The group’s companies include Super-Sol, the country’s largest supermarket chain, and Cellcom, one of the largest cellular service providers.
Elsztain’s contacts with the banks are expected to focus on covenants linked to 1.4 billion shekels ($399 million) of debt owed this year. He is also expected to meet with top IDB managers.
If the partners achieve a new package, they will meet later this week with officials at IDB Development’s largest creditor, Bank Hapoalim, which is owed about 750 million shekels. Elsztain and Ben-Moshe are expected to meet with other banks as well.
Things got so bad under Dankner that a going-concern warning was appended to IDB Development’s financial reports last year, meaning the viability of the company’s operations were in doubt.
In addition to Hapoalim, IDB Development owes money to Bank Leumi, Israel Discount Bank, Bank Mizrahi-Tefahot and HSBC, as well at to the Harel insurance group. It owes about 3.5 billion shekels in unsecured debt to bondholders, who are unlikely to accept steps that could be construed as giving preference to the banks.
Most irksome for IDB Development is the banks’ expected demand that the company maintain a cash cushion over the next two quarters equaling the debt payments that come due then. Currently it only has a few hundred million shekels in cash, barely enough to meet its payments over the coming months.
About a year ago, the banks waived this condition, but only until April this year. If the parties don’t come to an agreement, the banks will have grounds to call in the loans by August, when the company publishes its second-quarter earnings.
Ben-Moshe and Elsztain don’t want to wait until the last minute to resolve the issue. IDB Development owes the banks and bondholders about 1.4 billion shekels this year and 800 million shekels in the first nine months of next year.
In addition to bank financing, the partners expect to sell IDB Development real estate interests in Las Vegas, which are valued at 400 million to 500 million shekels, though the company will have a hard time getting that much. IDB Development is also expected to sell its remaining stakes in Koor Industries and IDB Tourism.