IDB Group Hits Low Point With Prospect of Debt Negotiations

Dankner kin step up to secure Ganden Holdings' debt to Leumi.

Friday was the ninth anniversary of the acquisition of the largest corporation consortium in the country - IDB - by Nochi Dankner and the Manor and Livnat families, but it seems that Dankner, who heads the IDB group and in the process became one of the most influential people on Israel's economic scene, has little reason to celebrate.

Shares of group company Cellcom, the cell-phone firm, for example, fell more than 26% last week against the backdrop of new competition in the industry. The development only reinforced the sense that IDB had hit a low point in its history.

And if far-reaching steps are not taken, the prospect looms that core group companies IDB Holdings and IDB Development, whose bonds are trading at redemption yields as high as 75% - reflecting the risk the market sees in holding them - could face highly complex debt rescheduling negotiations.

The scenario would have seemed impossible to imagine a few years ago in light of the firms' high liquidity at the time. Dankner has been at pains to try to dispel concerns recently and has made statements vowing that his companies' investors will not be taking a beating. But it seems the market needs more to be convinced.

"The market doesn't believe in talk, but instead is demanding action," said an official at one major financial institution. "It's still not the end of the play for Dankner, but it's certainly the last act. If they don't come to their senses at IDB, it will end quickly."

The lack of faith in Dankner in the marketplace is the result, in part, of a series of failed deals, such as a second round of investment in the Swiss bank Credit Suisse, the investment with Yitzhak Tshuva of the Delek Group in a real estate deal in Las Vegas, the purchase of newspaper publisher Ma'ariv and the injection of Israir into IDB Development to free Dankner of personal security he had extended.

And Dankner's family has also not been spared the current problems facing the IDB group.

Dankner's father, Yitzhak Dankner, has given Bank Leumi a lien on his own shares in IDB Holdings to secure the debt of Ganden Holdings, TheMarker has learned. Nochi Dankner is chairman of IDB Holdings.

Ganden is a privately held company through which Nochi Dankner controls IDB Holdings. Nochi Dankner has a 56% interest in Ganden.

Nochi Dankner's sister Shelly Bergman also gave the bank a lien on her own shares in Ganden.

Ganden spokesman Rani Rahav declined to comment on the news, while Bank Leumi issued a short statement that it "does not provide information regarding customers."

Ganden has a huge debt at Leumi. Against the backdrop of a fall in the IDB group's share price, banking industry sources say Leumi will have to recognize a loss for the first quarter of this year on debt owned by the Dankner family's business interests, despite the additional security provided by Yitzhak Dankner and Bergman.

It is thought that Ganden has hundreds of millions of shekels of outstanding debt, and that the company's primary creditor is Leumi, although smaller amounts are apparently also owed Mizrahi Tefahot Bank.

Most of Nochi Dankner's ownership interest in Ganden is held indirectly, through another privately held company, Tomahawk Investments, which has an outstanding loan from Israel Discount Bank. A senior banking industry source said, however, that the extent of the obligation to Discount is much smaller than what Ganden owes Leumi.

In a separate development, as Israeli banks prepare to release their first quarter financial reports, they are expected to set aside substantial amounts for the damage to their credit portfolios inflicted by last week's slide in the stock market. The slide was caused primarily by increased competition in the cell-phone industry.