After months of negotiation Nochi Dankner, the embattled controlling shareholder of the IDB group, is close to an agreement with the representatives of investors holding some NIS 1.8 billion in bonds and NIS 260 million in bank debt in his IDB Holding Corporation.
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Assuming it wins the backing of three-quarters of the bondholders who will vote on the settlement within a few weeks, the agreement will leave Dankner in control of IDB without having to inject any of his own personal capital into the group. Instead, the Argentinian businessman Eduardo Elsztain will put around some $75 million into Dankner’s private investment vehicle, Ganden Holdings.
That will give Elsztain a 21% share of Ganden, IDB Holding’s parent company.
Elsztain’s cash will enable Dankner to avoid bondholders’ claims against him and to spread out IDB’s debt repayments over an additional 14 years, in the hope that he will have financial resources not only to service IDB Holding’s debts but also the NIS 6 billion owed by its wholly owned subsidiary, IDB Development Corporation.
It should be noted that even if the arrangement is approved, IDB Holding Corp. will be an ailing company, with negative equity and saddled with the risk that it won’t be able to meet the revised repayment terms for reasons beyond its control.
The new package that IDB Holding’s bondholders will get is nominally equivalent to the original debt, but when the long-term rescheduling and the element of uncertainty in the arrangement is calculated in, it amounts to a haircut of about NIS 1 billion, or about half the value of the debt.
The bondholders’ representatives include Excellence Investment House and Gilad Pension Fund for Religious Workers as well as Yoni Sher, who was represented Harel PIA and now represents trustees. Harel dropped out of the representatives forum due to conflicts of interest.
Cash for IDB
So what is included in the many clauses of the draft agreement?
As of Wednesday, IDB Holding is 47.2%-controlled by Dankner and his family through Ganden while another 11.8% is owned by Avraham Livnat, 9.9% by Manor Holdings, 7.7% by Dankner directly and others. The public holds 19.6%, which is traded on the Tel Aviv Stock Exchange.
Once the agreement is signed, shareholders will be required to inject NIS 235 million into the company, above and beyond the NIS 40 million they have over the past year. That will go to covering interest payments to Series Bet bondholders.
Most of the money some NIS 200 million will be provided by Ganden, that is from funds Elsztain puts into the company. In addition, the Manor family will contribute NIS 25 million.
The Livnat family, which left the controlling shareholder group a year ago, will not contribute anything, which could open it up to lawsuits.
Beyond this amount, bondholders will receive on the day the agreement is signed NIS 130 million of NIS 190 million that is sitting in IDB Holdings’ balance sheet. All told, they will get NIS 405 million on signing day. They will also get a 15% stake in IDB Holdings valued right now at NIS 100 million. In addition, IDB’s controlling shareholders have committed themselves to injecting NIS 45 million into the company annually over the next five years.
If the payments are not made, their stake in IDB Holding will be diluted 7.6% each time.
Nevertheless, IDB Holding will remain in the control of IDB Development, which controls companies like Discount Investment Corporation. Discount, in turn, controls Cellcom Israel, Super-Sol, Property & Building, Given Imaging and Koor Industries. No agreement has been made between Dankner and his creditors over corporate governance.
Four bond series
The accord covers four series of IDB bonds totaling NIS 1.56 billion. The biggest, Series 1 Aleph, at NIS 775 million, is due to be repaid over eight years, starting in the fifth year of the agreement. The inflation-indexed bonds will carry a coupon of 2% in the first two years, rising to 3% and later 5%. Series 2 bonds, totaling NIS 325 million, will be redeemed over 13 years and carry the same rate of interest as Series 1 Alpeh.
Series Bet, which is for NIS 30 million, will be repaid over 14 years from the day the accord is signed. These bonds are not inflation-linked and carry a nominal interest rate of 4%. Series Gimmel, for NIS 165 million, will be repaid over five annual payments after the second year of the accord.
Apart from bondholders, Dankner is also contending with considerable bank debt. Ganden and another private investment vehicle called Tomahawk owed more than NIS 800 million and the odds of it being paid are very poor.
Market of two minds
The capital markets were of two minds Tuesday about the IDB Holding debt accord reached Monday night, but the general mood was one of skepticism.
Shares of IDB Holding Corporation itself rose 10.7% Tuesday to leave the company with a market valuation of NIS 605 million, while its bonds rose as much as 12%, although they are trading for as little as NIS 32 agorot.
“I think that we’ve achieved something impressive. We chose an arrangement among all the realistic options given to us,” said Yoav Armoni, CEO of Gilad Pension Funds and one of the bondholders representatives. “You can’t overlook the dynamic that was created by the counterproposal made by IDB Development Corporation representatives. In the end we rejected their plan and they rejected ours. A plan to inject some NIS 400 million into the company was the preferred route.”
Most money managers declined to comment, and those who did comment preferred to do so anonymously.
However, Gilad Altshuler, CEO of Altshuler Shaham Investment House, was willing to talk on the record.
“The representatives are right: The situation for the IDB Holding bondholders will be better off as a result,” he said. “Instead of seeing 10% of their debt today, they will see 20% and have the option of perhaps selling the shares they are due to receive.”
But another institutional investor, who does not hold IDB bolds and asked not to be identified, said bondholders could have done better.
“Except for the cash that bondholders get immediately, the rest of the securities bondholders are getting in the arrangement are not worth the paper they’re printed on,” the invesitment executive said. “If York and Psagot were to take control of IDB Development, under the arrangement as it reads now, there would be no reason to inject capital into the company or to repay bonds in the future.”
Another senior institutional investor, who asked not be named, said: “We’re talking about a NIS 1.2 billion haircut. There’s no collateral or guarantee for any of the amounts involved or on the bonds they are committed to pay. Apart from the initial payment, the bondholders are getting nothing.”