IDB Bondholders Face Fateful Choice: Work With Dankner, or Against Him

The cruel dilemma of the IDB bondholder: Nochi Dankner enters a new phase in his business career: fighting with his bondholders and their lawyers.

After years of traveling around the world in private jets, doing deals and borrowing money, Nochi Dankner enters a new phase in his business career: fighting with his bondholders and their lawyers.

The first encounter takes place this morning at Tel Aviv's Beit Hahayal, as managers of Dankner's IDB Group meet with bondholders holding some NIS 1.7 billion in debt, to detail the difficult state of the group's finances. Dankner, who is chairman of IDB Holdings - the company at the top of the IDB pyramid - will not attend. In his place will be CEO Haim Gavrieli, deputy CEO Eyal Solganik, CFO Shoni Albek and Avital Bar-Dayan, who is fresh from the ratings agency Midroog and is now IDB's director of investor relations.

The meeting comes on the heels of Friday's "going concern" warning, which was attached to IDB Holdings' second-quarter financial report. The warning means that the group's auditors doubt the company can meet all its debt-repayment obligations in the foreseeable future.

Apart from appointing people to represent the holders of IDB's Series Aleph through Heh bonds, the big question facing those attending Monday's meeting is whether to allow the company to make a NIS 35 million repayment due on Thursday. Such a payment would be giving preference to some creditors over others.

Already trustees for the bondholders warned in a letter sent over the weekend that as a company with a going concern warning on its books, it could not go ahead with any repayments or use any internal funds. The trustees demanded that IDB find the funds to make the payment from external sources. In exchange, they promised what is locally referred to as "industrial quiet" till December 20 to be exact, when a NIS 65 million payment is due bondholders. For its part, IDB rejected the demand that the payment come from external sources saying still has the means to pay from its own funds.

That assertion is backed up in the company's financial statements. "In spite of the attachment of a 'going concern' warning, the company has the ability to continue operating its businesses, and in this framework to repay its obligation in an orderly fashion," the report said.

Sources in the capital market said Sunday that they expected Dankner and his managers to try and convince creditors to grant them an extension of three to six months in the expectation that IDB will succeed in recruiting a new equity investor into the group. That new investor will inject capital in the company, enabling it to meet its repayment schedule.

Bondholders will have to decide among themselves if they want to agree to the request or to begin the process of hammering out a debt settlement, to turn to the courts with restraining orders or to insist on immediate repayment of the debt. The key determining factor here will be whether they have faith that Dankner can indeed enlist a new investor into the group.

The discussions will not be about bondholders getting all the money due them, rather how much - even though to date, IDB has met all its obligations as Dankner has made supreme efforts to avoid imposing a "haircut" on them.

On Sunday, prices for IDB Holdings bonds plummeted as much as 8%, trading at anywhere between 17 agorot to 34 agorot, compared with their face value of 122 agorot. That represents a considerable haircut for anyone trying to sell them now. And, with S&P Maalot, the credit rating agency, cutting their rating to CCC, the Tel Aviv Stock Exchange on Sunday said it was removing IDB Holdings' Series Gimmel and Dalet bonds from its bond indices.

Some NIS 4 billion of bonds issued by IDB Development, the IDB Holdings subsidiary, are trading at 40 agorot. Capital markets sources say those bondholders are likely to get something in the range of 80 to 80 agorot on their bonds.

Over the weekend, as the markets were digesting the implications of IDB's going concern warning, one of the big questions became whether bondholders would simply take control of the group, remove Dankner and appoint their own managers.

IDB Holdings' key asset is IDB Development, which in turn controls Discount Investment Corporation and Koor Industries. They, control corporate assets like Clal Insurance, Cellcom Israel, Super-Sol as well as shares in Credit Suisse and Makhteshim Agan.

Bondholders would need to appoint a CEO who has deep experience in managing big companies, with the skills to enhance their value and sell them off. He or she would have to have strong connections overseas with the aim of finding investors and buyers there. But there are many who doubt the bondholders will dare make such a move.

"If bondholders didn't do this to Suny, which is a much simpler business, I don't think they will do it to IDB, which is more complicated," said one capital markets source, who spoke on condition of anonymity, referring to Ilan Be-Dov's holding company.

"It would be very difficult to find an CEO who could do all this better than Dankner, even if he was the one who brought the company to the state it's in Monday," the source said. "I think he has learned his lesson and has a strong incentive to complete [the process] without a haircut."

Nochi Dankner
David Bachar