Rotem Starkman / The Unspun Truth: IDB Holding Is Bankrupt

IDB Holding bondholders should ignore the Eduardo Elsztain spin, take control and fire the bums.

In Raviv Drucker’s film “Arik Sharon and the Second Intifada,” Uri Shani - the prime minister’s bureau chief in 2002 - talks about an incident in which he got Sharon to sign a letter Sharon didn’t read at all.

The letter was addressed to the foreign minister at the time, Shimon Peres. It asked Peres to withdraw his decision to take the Labor Party out of the government, a decision made in a fit of pique at Sharon.

Sharon signed, Peres climbed down from the tree and, of course, nothing that was promised in the letter ever happened.

Anyone who read the letter released yesterday by Ganden Holdings, which controls IDB Holding Corp., on behalf of Argentinean investor Eduardo Elsztain might notice a certain similarity between the two events.

In the body of the email to news editors, the Ganden spokesman wrote: “Honored Sirs, the emails sent herewith speak for themselves," and exhorted the editors to publish them. Signed, Ran Rahav, Ganden spokesman.

Speak for themselves? The email was spin from the workshop of Nochi Dankner’s people, nothing more.

The letter was in Spanish but Elsztain’s representative who sent the letter to Rahav appended a translation (“for the benefit of “the Israeli media”).

Here it is, for your benefit

This is the heading of the letter: “From the office of Eduardo Elsztain, sent today (Buenos Aires, 12.2.2013)”.

And here is the letter itself: “A company controlled by Eduardo Elsztain has entered into a partnership with the Ganden corporation and through it, with the IDB group led by our partner Nochi Dankner. We are aware of the challenges facing the group, including a move to reach a debt arrangement, which is being carried out with our knowledge and in full coordination with us. A representative of ours is permanently present at IDB headquarters in Israel and is closely observing the process.

"We are convinced that by means of the talks underway between IDB Holding and the holders of its stocks and bonds, a fair solution can be found that will serve the good of the company and all the holders of its debt, and will enable the management of IDB to stabilize the company and restore it to the path of growth and profitability. We are acting in order to increase our investment in Ganden and the IDB group and next week Mr. Eduardo Elsztain is expected to arrive in Israel for another visit, in order to advance the deal.”

The letter is not written on official stationery. It is not signed by anyone nor is it addressed to anyone. Moreover, the letter has not been published on the Maya – the Tel Aviv Stock Exchange site for corporate announcements.

Just like the letter Sharon didn’t read, what it says matters not at all, especially as it doesn't say much.

Don't let them leash you

Let's begin from the fact that IDB Holding Corp., the company at the top of the IDB pyramid of companies, is essentially insolvent, and its bondholders' representation – a puny, fragile bunch – are still mulling what to do about it. Meanwhile, the second company in the hierarchy, IDB Development Corp., is not insolvent, but its bondholders' representation (led by York Capital, Psagot and Harel) are a feisty lot and do want to take the whole group to liquidation.

They can't, since the company in which they hold bonds, IDB Development, is not in fact insolvent. But they can press the puny IDB Holding bondholders to sue for liquidation, and today the two bondholders' representations are meeting. Which brings us back to the Elsztain letter.

Presumably the idea is to appease IDB Holding's bondholders – who have been getting restless – in advance of their meeting with the IDB Development bondholders (who initiated the meeting) and get infected with their activism.

So, the aim of the letter published before the meeting was to urge again: Don’t lose it. The money is just around the corner. Any moment Elsztain is coming and then everything will work out.

But this conduct is unacceptable. The bondholders gave Dankner three months to pay the debt, because they were told that Elsztain’s money was on its way to them. Then it turned out that in fact Elsztain’s condition was that first of all they should accept a haircut – agree to lose some of their money. Only then would he be prepared to consider sending the money.

This letter wasn't the first attempt by the IDB group to show that things are moving ahead with Elsztain; that there is a horizon; that they shouldn't make hasty moves they would regret in the future.

But these spins have been and remain meaningless. IDB Holding is insolvent and its bondholders – meaning, the finance institutions that bought its bonds on your behalf - should seize control of it and fire the executives leading it. They should extract whatever they humanly can for the benefit of the widows and orphans.

True, this won't be much, because there are creditors who take precedence over them. For example, the bondholders of IDB Development.

But there's no point in sitting tight waiting for things to sort themselves out, because they won’t.

The IDB Holding bondholders should take a page from Bank Hapoalim's book.

Hapoalim knows it won't see much joy from Europa Israel, the company through which Moti Zisser controls Elbit Imaging. Simply, the bank is forging ahead and liquidating the beast. The bank had lent Europe Israel hundreds of millions of shekels and has decided it isn't likely to get more than a fraction back. The bank also knows that the bondholders in Elbit Imaging, the subsidiary, have precedence over it. But it decided to take action, rather than sit around moaning.

Alex Levac