A decade after acquiring the biggest conglomerate in Israel, Israeli businessman Nochi Dankner lost control of the IDB group on Tuesday.
Tel Aviv District Court Judge Eitan Orenstein approved a bailout plan devised by Moti Ben-Moshe and Eduardo Elsztain, who were, until some weeks ago, unknown in Israeli business circles.
Elsztain, who was once a partner in Dankner’s effort to retain control of IDB, is an Argentine investor and chairman and CEO of IRSA, Argentina’s biggest real estate company, as well as chairman of Cresud, a major agriculture producer. Ben-Moshe, an Israeli, made his fortune in Germany through a holding company called Extra Holdings.
“This is an exciting moment,” Ben-Moshe said after the decision. “We will provide all the disclosure required to whoever requires it. IDB is about to embark on a new path. Nochi is saying that he is still in control? He can live his fantasies.”
IDB Holding Corp sits at the apex of the IDB group. The group includes some of Israel’s leading businesses, including the mobile operator Cellcom Israel, Clal Insurance and the Super-Sol supermarket chain.
IDB Holding itself owes 1.7 billion shekels ($486 million) to bondholders and another 300 million shekels to Bank Leumi, Credit Suisse and Bank Mizrahi-Tefahot.
Bank Leumi: Just another borrower
In fact, Dankner signalled he planned to continue the fight.
“We have no intention of losing this war and are weighing what step to take going forward,” he said shortly after the court issued its decision on Tuesday. “A decision was handed down, but issues remain open. Nothing new has occurred in regard to the important question of who stands behind all this – what are the sources of Moti Ben-Moshe’s money. We believe these are not legitimate."
Meanwhile, Dankner himself remains with personal debt approaching a billion shekels. The banks seem unable to point at assets he might have to back the loans, aside from his house in Herzliya Pituach, which is estimated to be worth 40 million shekels. Yesterday ICPAS, the Institute of Certified Public Accountants in Israel, hosted a panel with representatives from Israel's biggest banks, mediated by Haaretz commentator Nehemia Shtrasler. Answering a challenge from Shtrasler about hounding the poor over debt while forgiving the rich, Leumi chairman David Brodet stated, "We will treat Nochi Dankner like any other borrower, fairly and based on banking criteria. Just like we treat a mortgage holder from Rishon Letzion, we will treat Nochi Dankner the same."
Theoretically, at the end of the process, Dankner could be declared bankrupt.
Judge: Investors’ registration is ‘suspicious’
Last week the Ben-Moshe-Elsztain proposal received the support of 75.2% of IDB Holding’s creditors.
Orenstein said in a 48-page ruling that the restructuring plan could get underway on December 29, but conditioned it on further disclosure to regulators by the Ben-Moshe-Elsztain group.
Among other things, Orenstein called the group’s registration in the Virgin Islands suspicious, and told it to meet within a week with regulators from the Securities Authority and the Official Receiver, which is responsible for handling corporate bankruptcies.
The judge rejected a petition by Elsztain-Ben-Moshe to delay any disclosure until the group needed to raise further capital, saying it would cause irreversible harm to investors. Orenstein criticized how the disclosure issues had been handled to date.
“The power enjoyed by the controlling shareholders requires that they reveal completely all the required information,” he ruled. “Mainly, this refers to the foreign companies, with particular attention to those registered in the Virgin Islands.”
Or else, liquidation
If the Elsztain-Ben-Moshe group fail to meet the disclosure conditions Orenstein set, IDB would be subject to a liquidation order. The judge hasn’t yet addressed the petition of one rebel bondholder, who has sought for the conglomerate to be disbanded for lack of payment on a bond he holds, but on Tuesday he said, “There’s no question that if the debt agreement isn’t approved, the one route left for the company is liquidation.”
Dankner has 45 days left to appeal the decision to the Supreme Court. Orenstein’s insistence on disclosure conditions opens up a window of opportunity for Dankner to pursue the legal process and perhaps seek a restraining order.
However, to do that he will have to make a large deposit, probably on the order of a billion shekels, to cover any damage due to delays in turning IDB over to its new controlling shareholders that might arise from his legal claims.
Dankner had sought to retain some semblance of control over IDB, even as a junior partner, via a restructuring proposal with Ukrainian businessman Alexander Granovsky, but it was rejected by IDB’s creditors.
In recent days, Dankner and Granovsky tried to ward off defeat by claiming irregularities with the Elsztain-Ben-Moshe proposal. They hired investigative auditor Yehuda Barlev, who said the companies belonging to Ben-Moshe’s Extra Holding engaged in aggressive tax planning and were structured in a way to obscure the identity of the owners.
“In extreme cases this sort of structure could be used to commit acts of money laundering,” Barlev wrote in a report that IDB Holding sent to the Tel Aviv Stock Exchange two days ago.
Ben-Moshe then had his lawyer send a letter to the investigator demanding a public apology.
Despite those question marks and some outstanding issues, investors on the Tel Aviv Stock Exchange cheered the decision. Shares of IDB Holding closed 12% higher at 3.80 shekels. Its Series Dalet bonds climbed 1.6% and its Series Heh bonds 1.1%
“I think we can cut layers and cut costs and that will be part of the strategy,” Elsztain told Channel 10 News. He said an Israeli CEO would likely be appointed to head IDB and the future board of nine directors would include three independents.
The Elsztain-Ben-Moshe proposal calls for injecting some 650 million shekels of cash into IDB Development Corporation, a holding company wrung down from IDB Holding. In addition, they will make a 300 million shekel payment to creditors and swap further debt for a 46.7% bloc of stock in IDB Development.
Still, Orenstein said IDB’s creditors stood to lose about 30% of their investment.
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