Roundup / IDB, the Bare Facts

Israel's biggest holdings group is teetering on the edge of default, auditors say.

It's not news that IDB, once the biggest holdings group in the land, has a liquidity crunch, but the going-concern warning in its second-quarter financial statement was news. In other words, its auditors think the IDB Holding Corporation, the company at the top of the holdings pyramid, could default on its debts in the foreseeable future.

* As last week rolled to a close, acting some six months after yields on IDB bonds began to climb (attesting to investor worry), Standard & Poor's Maalot downgraded IDB Holding debt to CCC, one grade above D for Default, and put the company on negative outlook to boot. In other words, Maalot thinks another downgrade within the next 12 months is more likely than not.

* The downgrade to CCC could trigger heavy sales of IDB Holding bonds by institutional investors, Maalot points out, if only because mutual funds for instance aren't allowed to invest in bonds below BBB grade.

* IDB Holding owes its bondholders NIS 1.7 billion. Banks are owed NIS 300 million more.

* Given the going-concern warning, as a precondition for giving IDB Holding three months to work out its problems in peace, the trustees representing bondholders demand that the company pay the NIS 35 million owed this week from external sources, not the company's resources. In December IDB Holding is supposed to pay them NIS 65 million.

* IDB Holding posted a loss of NIS 1.27 billion for the second quarter of 2012. In the corresponding quarter of 2011 it lost NIS 883 million.

* Subsidiary IDB Development posted a loss of NIS 1.25 billion for the last quarter, compared with a loss of NIS 821 million in the parallel quarter of 2011. It has an NIS 183 million shareholders equity deficit (more liabilities than assets). It owes bondholders NIS 4 billion, and banks NIS 2.2 billion. While its financial statement doesn't sport a going-concern warning, it does have an auditor's caution drawing attention to uncertainty about the company's ability to meet its liabilities on time.

* Discount Investment Corporation, which owns Maariv and Super-Sol, reported a net loss of NIS 1.3 billion for the second quarter, compared with losing NIS 703 million in the same period of the year before. Discount Investment also controls Koor, which has been losing money on its speculative investment in the Swiss bank Credit Suisse.

* Koor owns 2.3% of Credit Suisse's stock. During the second quarter, Credit Suisse lost 33% of its value on the Zurich stock exchange. Koor admitted to losing NIS 1 billion in the second quarter of 2012, compared with losing NIS 995 million in the same quarter of yesteryear. Note ye that while Koor hasn't realized its loss on the bank's stock – meaning it is holding onto the shares – its loss is on paper, but it still had to write down the value of its holding. One reason for Credit Suisse tanking on the market is a three-notch downgrade to A2. Note ye also that Koor had planned to invest NIS 7 billion in Credit Suisse's stock and it's only invested NIS 6.1 billion so far. Koor says it will continue to invest in the Swiss bank.

* Apropos Maariv, it means to ask the antitrust commissioner for special permission to collaborate, possibly with arch-rival Yedioth Ahronoth, in publishing.

* A top source in the banking system said Sunday morning that the banks have taken an ounce of prevention, and classified most of the debt owed by Nochi Dankner's private companies, and of the IDB group companies, as impaired. Even if the IDB group implodes, says the source, the banks won't suffer heavy losses beyond the charges they have already booked. "The banks were not surprised by the going-concern warning," he remarked.

* Nochi Dankner, controlling shareholder of the group and chairman of IDB, says that under the circumstances, he will forgo half his pay, from about NIS 200,000 a month, for a year starting now.

* IDB Development CEO Haim Gavrieli and other executives said on Friday they would forgo 10% to 15% of their pay for a year starting now. Over at Discount Investment Corporation, the executive pay cut is 15% to 25%.

* Obviously the government has a beady eye on developments at IDB, said a source there, adding that "several meetings" had been held over the sprawling business concern over the last six months. "The main conclusion of our discussions was that a fall by IDB would theoretically lead to the fall of its subsidiaries but not to a macroeconomic event," the source added.

* Said source in government points out that under the terms of IDB's bank loans, if Nochi Dankner sells control over the group to somebody the banks don't like, they can recall their loans.

With writing by Michael Rochvargerm, Sivan Aizescu and Eran Azran.