IDB's nightmare quarter

Nochi Dankner's investment company reported a NIS 1.27 billion loss, and a going concern warning.

Now it's official. IDB Holding Corp. Ltd. (TASE:IDBH) has released financial statements for the second quarter of this year with a going concern qualification appended to them. All of controlling shareholder Nochi Dankner's efforts to avoid a going concern qualification were of no avail, after last minute attempts to bring in an investor to inject cash into the group failed.

The significance of the going concern qualification is that there is doubt over IDB Holding's ability to meet its commitments over the next two years. The company's bondholders are now entitled to demand immediate repayment of their bonds, or at least to demand that the company should present to them its plans for finding the wherewithal to repay the debt.

Nevertheless, the report of the board of directors states, "Taking all the circumstances into consideration, to the stance of the company despite and following the inclusion of the going concern qualification, the company is capable of continuing to operate in the course of business and in this framework to meet its obligations as they fall due.

"The company and its controlling shareholders continue to act in order to obtain the sources directly required for the company, in this context. Among other things, various negotiations are taking place for carrying out investment in the company."

In the second quarter, the conglomerate's losses worsened to NIS 1.27 billion, which compares with a loss of NIS 821 million in the corresponding quarter of 2011.

Subsidiary IDB Development reported a net loss of NIS 1.25 billion for the quarter, compared with a loss of NIS 821 billion in the corresponding quarter.

S&P Maalot has updated its rating for IDB Holding bonds, downgrading them seven grades to CCC, "because of the continuing decline in the level of liquidity and a substantial rise in the fear of insolvency within a year."

This December, IDB is due to make a NIS 65 million interest payment on its 'D" bond, and in June 2013 it will have to pay a further NIS 245 million. It currently has NIS 220 million cash.

IDB Holding has in its portfolio leading companies such as mobile telephony company Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), supermarket chain Shufersal Ltd. (TASE:SAE), Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), Elron Electronic Industries Ltd. (TASE: ELRN), and Property and Building Ltd. (TASE: PTBL), but it is in a challenging financial situation. Its bonds are currently traded at yields over 200%. Its total debt is some NIS 2 billion, of which NIS 1.25 billion is to bondholders.

As things stand, from June 2013, IDB Holding will not have the wherewithal to meet its obligations. The company cannot rely on dividends from subsidiary IDB Development, via which the other group companies are held, because the latter has a negative balance of profits available for distribution, and because it has undertaken not to distribute dividends as part of the financial covenants with its lending banks. The parent company must therefore find a direct source of a cash injection. Talks with potential investors have not so far borne fruit.

Group companies Discount Investment Corporation (TASE: DISI) and Koor Industries Ltd. (TASE:KOR) reported large losses because of the steep decline in the share price of Credit Suisse, in which Koor is invested. (Discount Investment is a subsidiary of IDB Development and the parent company of Koor). Discount Investment lost NIS 1.26 billion in the second quarter, and NIS 856 million in the first half. Koor lost NIS 1.05 billion in the second quarter, compared with a loss of NIS 1.16 billion in the corresponding quarter. At the end of the second quarter, Koor held 30.32 million shares in Credit Suisse. It has a profit on paper of some NIS 124 million on the investment since the end of the quarter.

In the light of the results and the company's shaky financial position, Dankner has decided to forego 50% of his monthly salary for a year from September 2012. Officers of IDB Development will forego 10-15% of their salaries for the same period.

Published by Globes [online], Israel business news - www.globes-online.com - on September 2, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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