Bondholders Ready to Take Over IDB Group if Tycoon Can't Pay His Debts, Creditor Says

Israel's Psagot Investment House warns that 'the time has come to tip the balance,' while Nochi Dankner seeks funding from Argentine investor.

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Bondholders are ready to take control of Nochi Dankner's IDB group if it can't reach an agreement acceptable to its creditors, the CEO of Psagot Investment House warned on Wednesday.

"The time has come to tip the balance. If someone can't meet his debts,we will take every available action, including taking over the debtor's company," Hagai Badash said in a speech at an insurance convention in Eilat.

Badash's warning comes days after investors holding billions of shekels in bonds issued by IDB Development Corporation presented the Tel Aviv District Court with a plan that would swap NIS 3.4 billion of NIS 6 billion in debt for a controlling stake in the company. Psagot is one of those investors. On Tuesday, investors holding bonds in another Danker company, IDB Holding Corporation, asked to join the IDB Development bondholders.

If they succeed, the bondholders would gain control over large swathes of Israel's business scene, including Cellcom, Super-Sol and Clal Insurance. Dankner's group, arranged as a pyramid with his closely held Ganden Holdings at the top and IDB Holding and IDB Development right below, has around NIS 9 billion in debt and has sought to renegotiate terms in a way that would retain his control over the group.

"It's unacceptable that when someone doesn't pay a mortgage debt of hundreds of thousands of shekels, they take his house away, but when a company fails to pay billions in debts, they defer the debt time after time and ultimately give in, writing off part of the debt while control remains in the hands of the same shareholder," Badash told insurance agents at the convention.

Dankner is in Argentina this week in an effort to secure $75 million in new capital from Argentine investor Eduardo Elsztain for Ganden. Dankner had come close to reaching an agreement with Bank Leumi to forgive a large part of Ganden's debt before Leumi withdrew following a public outcry.

In response to Badash's remarks, IDB Development noted that it had NIS 1.1 billion in cash on hand and had met all its debt repayments to date. "Badash has finally shown that his goal is to seize control of the high-quality assets belonging to IDB Development,"the company said. "We are familiar with Badash's populist behavior, so it is not surprising that he is trying to ride the current wave to pursue his goal – control of the [IDB] group's assets."

Badash said his firm would not invest in companies with a troubled repayment history. Psagot is the country's largest investment firm, with assets of NIS 160 billion under management. In a series of high-profile cases, Israeli companies have renegotiated debt, forcing bondholders to suffer losses, popularly known as haircuts.

"The axiom that debts must be repaid has taken on a looser interpretation. It's a phenomenon that should be uprooted completely from Israel's capital markets," Badash said. "To achieve this, managers of the public's funds must not simply react. They must take the initiative and be constantly active and involved."

Michael Rochvarger and Hila Raz contributed reporting.

Since Badash become CEO in May 2012, he has worked tirelessly to return Psagot to the investor activism of former CEO Roy Vermus. Credit: Ofer Vaknin

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