Tel Aviv investors are having no mercy on IDB Holding Corp. Ltd. (TASE:IDBH) securities, and the negative sentiment towards the holding company controlled by Nochi Dankner continued today.
At today's opening, the company's bonds fell 10%, but the declines were halted towards the end of the session. At the close, IDB shares, which fell by as much as 7% in the course of trading, were actually 0.9% up. The company's bonds fell sharply, with the D series down 6%. The yield on the C series bond, the highest on any of the company’s bonds, is now at 35.5%.
1. Why now? That is the main question that the current decline in IDB's stocks and bonds provokes. What was the trigger for the 15% fall in the company's share price in the past week, and drops of up to 20% in prices of its bonds? True, the share price of Credit Suisse, one of the company's main and most leveraged investments, fell sharply last week, but the assessment on the capital market is that that is not the main reason for the negative trend.
It seems that investors' confidence in IDB's ability to meet its debt repayments has been dented, just when Dankner has been taking a series of steps to make repayment possible.
"The market doesn't like the way in which Dankner is dealing with the debt problem," says a market source. It will be recalled that, last week, IDB reported that it had secured loans amounting to NIS 300 million from the Bereshit fund and Menorah Mivtachim Holdings Ltd. (TASE: MORA). Those loans enable IDB to repay its debts in the short term, but at the price of charges in favor of new creditors. The more IDB mortgages its assets, the less that will be left for bondholders in the event of a future debt arrangement.
"Dankner is dealing with the debt problem from the top, that is, by taking loans in the group's headquarter companies, instead of doing it from the bottom, by selling subsidiaries and improving liquidity through dividend distributions," the source adds. Dankner did enter into talks on selling Shufersal Ltd. (TASE:SAE) and Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), but in the end he drew back from realizing these assets. The capital market would apparently have preferred to see Dankner compromise on price and complete a deal that would improve liquidity.
Meanwhile, the only asset Dankner is trying to sell is Mashav Initiating & Development Ltd., which owns cement monopoly Nesher, and a deal was even signed to sell the company to the Livnat family, Dankner's partner in the controlling interest in IDB, but there is a cloud of uncertainty over this deal too, mainly to do with approval by the Antitrust Authority
2. What about the buyback? A few months ago, IDB announced that it would buy back its bonds, in various group companies, to the tune of hundreds of millions of shekels. However, since then, no significant repurchases have been made. At first, sources close to the group claimed that this was because the reporting season was close; then it was claimed that the institutions simply didn't want to sell.
It can't be argued now that the institutions don't want to sell, even if it is at rock-bottom prices, and still, IDB isn't buying. Market sources estimate that the reason for that may be fear that such a move will be interpreted as taking advantage of insider information, in the light of the various moves the group is making. At any rate, such a repurchase would likely bolster the capital market's confidence in the group.
3. The magic power remains: Nochi Dankner has never been the wealthiest person in Israel, and even at its peak, IDB was not the largest group here. All the same, it will be no exaggeration to say that Dankner is considered one of the strongmen of Israel's business world, if not the strongest.
Even today, after the declines, it seems that his power is undiminished. Despite the high leverage, and the high bond yields, the ratings companies have still left the company's high rating (A) intact. Similarly, the bondholders are still not demanding a meeting to hear updates and to demand explanations from the group about the way it intends to repay its debts.
The institutions too have kept silent. Off the record, they are prepared to criticize the group's position sharply, but for attribution? "No thanks." No-one wants to tangle with Nochi.
More than that, there are even institutions that are currently selling the bonds at bargain basement prices just so that, in the future, if the group has to enter into a debt arrangement, they won't find themselves in a situation in which they must either confront Dankner or come under fire from the media. "Sometimes, it's preferable to precipitate losses and sell cheap, rather than to get into a debt arrangement versus Nochi Dankner," is how a source at one of the institutions summed up the matter.
Published by Globes [online], Israel business news - www.globes-online.com - on May 7, 2012
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