Coronavirus Outbreak Risks Control of Empires for Two Israeli Tycoons

Delek’s Yitzhak Tshuva and IDB group’s Eduardo Elsztain wrestling with nervous creditors as asset values plunge

Israeli tycoon Yitzhak Tshuva with his wife Haia.
Olivier Fitoussi

The business empires of two of Israel’s last tycoons standing are teetering as the new coronavirus rips through the financial markets.

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Delek Group, the holding company controlled by Yitzhak Tshuva, was able early Sunday to prevent Citibank at the last minute from taking collateral in the form of shares in its Delek Drilling unit.

Delek Group completed the sale of its stake in IDE Technologies, a desalination-technology company, at a bargain price to raise cash.

Meanwhile, IDB Development Limited, which sits at the apex of the group controlled by Argentinian entrepreneur Eduardo Elsztain, was reportedly in talks with holders of its Yud-Daled bond series about postponing an 11-million-shekel ($3 million) payment due at the end of March.

Argentinian entrepreneur Eduardo Elsztain.
Ofer Vaknin

The bondholders are owed 880 million shekels but the shares in the IDB unit Discount Investments are currently worth less than 350 million shekels. IDB Development is expected to call a meeting of the Yud-Daled bondholders in the next several days to discuss putting off payments, but they are expected to reject the proposal.

The two tycoons’ indebted business groups have come under pressure as the coronavirus has caused the prices of shares and oil to plunge. Tshuva’s Delek Group jumped 13% to close at 61.50 shekels on the Tel Aviv Stock Exchange Suday, but its shares are still down nearly 90% since the start of the year.

Delek has been brought down by its highly-leveraged $2 billion purchase of oil assets from the energy giant Chevron in May 2019. However, the price of oil has collapsed this year as the pandemic has cut into oil demand.

Elsztain’s IDB has been pounded by the drop in share prices on the TASE, cutting the market capitalizations of its group companies by tens of percent. Discount Investment, one of IDB’s key holdings, now has a market cap of 458 million shekels after the price of its share closed down 8.7% on Sunday at 3.24 shekels. Another key holding, Clal Insurance, has lost 53% of its market valuation in the past month, despite a 5% gain on Sunday to 20.03 shekels.

Elsztain, who arrived in Israel last week to help sort out the group.’s problems, had sought to solve at least part of them by selling control of IDB’s airline unit, Israir. But the coronavirus has decimated the global aviation industry. Israir itself is seeking repayment by the end of March of a $5 million loan it gave IDB in October, after three postponements.

IDB reportedly has no cash on hand to meet bond payments, even though it owes nearly 1 billion shekels to two other groups of bondholders. One of them, holders of the Tet-Vav series, have as collateral a 10% stake in Clal Insurance.

IBD Development now has a net asset value – total assets minus total debt – of negative close to 1 billion shekels. Its 2019 financial report, due out at the end of the month, is expected to contain a going concern warning from its auditors.

Elsztain’s problems at IDB are compounded by Israel’s new insolvency law, which allows outside directors to act in the interest of creditors in the event of a crisis, over that of the controlling shareholder. Among other things, outside directors are demanding that Elstzain inject 40 million shekels into IDB Development.

At Delek Group, Citibank had sought to call in the $57 million loan after the value of Delek Drilling shares plunged this year by 65%, but Delek Group won a temporary injunction from Tel Aviv District Judge Eitan Orenstein holding off any action until Tuesday, citing the coronavirus for creating a volatile situation in the financial markets

“We are meeting all our obligations, and there is no reason for unilateral steps, especially during a period of market turmoil due to the coronavirus crisis and the price volatility of oil,” Delek said in a statement. “To anyone who fantasizes about hurting us, we want to make it clear, Delek Group is financially strong and will weather the current crisis.”

Meanwhile, Delek Group said it was selling a 20% stake in IDE to a group led by IDE’s chairman, Avshalom Felber, for 170 million shekels in order to raise cash.

The 850 million shekel valuation for IDE is 18% less than Delek had assigned the company in a cash flow report it issued last week in an attempt to assure investors it could meet its obligations going forward. Delek said it had planned on selling the IDE shares only in 2021, but apparently its cash crunch forced it to act now.

The sale follows the sale of 71% of Tshuva’s privately owned Elad Israel Residences property company to Israel Canada Limited for 205 million shekels last week and its remaining 22.5% stake in Delek Automotive, the Israeli importers of Mazda, Ford and BMW vehicles, for 404 million shekels to the Altshuler Shaham investment house and Gil Agmon.