Nochi Dankner will continue managing the IDB Development Corporation, but he will be under the careful watch of his creditors, a court hearing a dispute between the indebted holding group and its bondholders ruled Tuesday.
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Tel Aviv District Court Judge Eitan Orenstein approved the plan in a hearing where Dankner, IDB Development's controlling shareholder, made a rare public appearance.
Under the agreement, Chagai Ulman, an attorney at Yehuda Raveh & Company, a law firm that specializes in winding up bankrupt firms, was named an outsider observer for IDB Development. In addition, Eyal Gabbai, who was appointed by the court to supervise a debt settlement, will be named to a senior position in the company.
While approving a supervisory regime at IDB Development, Orenstein said he still wanted the company and its bondholders – which are led by York Capital of the United States, Psagot Investment House and Phoenix Insurance – to agree to a recovery plan for the company. He scheduled another hearing for May.
IDB Development's bondholders are seeking court approval to go ahead with a plan they devised to rescue Dankner's IDB Development from debt they say the company is unable to service. The plan would have swapped a portion of IDB Development's debt for equity and rescheduled the rest.
But at Tuesday's hearing, Orenstein said he was not yet prepared to make such a decision. Nor, he said, was he willing to accept IDB Development's assertion that the company remains solvent and able to meet its obligations.
"In my opinion, there is no place now to accede fully to the request of the representatives of the IDB Development bondholders," he said. "Likewise, I oppose employing the expert opinions submitted by the representatives of IDB Development, which are contrary to the position of the Supreme Court, which stated that the evaluation method is invalid."
Eyal Rosovsky, an attorney for the bondholders, called the decision Tuesday a "big victory" for his clients. "Who would have believed that a court would say that IDB is insolvent?" he said. "We're talking about a historic event."
At stake is the future of one of Israel's biggest holding groups, which has interests that extend to household names, like Cellcom Israel and Super-Sol, and holdings that include Clal Insurance and a stake in Credit Suisse. IDB Development is a company near the top of the IDB group's business pyramid, with publicly traded IDB Holding Corporation right above it and Dankner's privately held Ganden Holdings at the top.
"The situation is worse than I thought," Orenstein said. "The court has been petitioned to provide temporary relief [for IDB Development] over which there is a profound disagreement between the two sides. On one side is the fear of bondholders, who are demanding a recovery plan based on their controlling the company, the biggest holding company in the Israeli economy. On the other side, is its parent company, IDB Holding Corporation, which owes NIS 2 billion and asserts that such a step will create an economic earthquake. By its side are bondholders who support the company."
IDB Development is not traded, but shares of IDB Holding were up 0.9% Tuesday in trading on the Tel Aviv Stock Exchange.
Orenstein reiterated his tough criticism of the banks and insurance companies – first issued when he heard the bondholders' petition Sunday – asking how they could have lent money to IDB Holding without collateral. He also leveled criticism at Dankner, who violated court procedure by failing to appear on Sunday, instead sending a signed statement to the court.
"Apart from all this, I cannot ignore the warnings that exist about improper management in terms of corporate governance [at IDB Development], the distribution of massive dividends and the difficulties of divesting assets," Orenstein said. "I believe I can't ignore concerns about conflicts of interest among the multitude of executives in the company."
In naming Ulman an observer, Orenstein said he could not override the decisions of IDB Development's management.