Regulator permits banks to join on IDB settlement

Antitrust Authority director general David Gilo has allowed Discount Bank to meet IDB Development's other creditor banks.

The Antitrust Authority is allowing the banks to meet and jointly draw up a debt settlement for IDB Development Corporation. Sources inform ''Globes'' that Antitrust Authority director general David Gilo today responded to Israel Discount Bank (TASE: DSCT), which sent him a letter on Monday, asking whether the banks could discuss the issue between them.

In the response, Gilo said that the banks could meet and talk, on condition that the discussions were limited to IDB Development's debt, and only until June 19, three weeks from now. Although this is a short time frame, given that a court hearing on the debt settlement is scheduled for next week, the banks will have to draw up a joint alternative proposal by then in any case.

The fact that Gilo has limited the time the banks may meet indicates that he is not enthusiastic about giving them sweeping permission to discuss debt settlements jointly. It can be assumed that, in future, if necessary, he will also allow specific joint discussions for particular companies for predetermined periods of time.

IDB Development owes NIS 2 billion to six banks: Discount Bank, Bank Hapoalim (TASE: POLI), Bank Leumi (TASE: LUMI), Mizrahi Tefahot Bank (TASE:MZTF), and two foreign banks, HSBC Holding plc (LSE: HSBA; HKSE: 005; NYSE, Paris: HBC) and BNP Paribas SA (Euronext: BNP). Bank Hapoalim is the biggest creditor, owed more than NIS 700 million.

Discount Bank approached Gilo after it was surprised to learn late last week that IDB Development's bondholders had drawn up a debt settlement proposal together with the bondholders of its parent company, IDB Holding Corp. Ltd. (TASE:IDBH). Discount Bank was displeased that some of IDB Development's creditors had drawn up a settlement without discussing the matter with the bank. Discount Bank has not yet decided how to respond on the matter, and wanted to examine the option of discussing the matter with the relevant banks.

It is important to note that the regulatory permission to discuss a settlement for IDB Development does not guarantee that the banks' representatives will meet and try to prepare such a settlement. The banks today ducked the question whether they will act together to prepare an alternative debt settlement, despite having Gilo's permission.

In response to a query by "Globes" to the four Israeli creditor banks of IDB Development, Bank Hapoalim and Discount Bank declined to comment. Bank Leumi said, "We have not yet seen the Antitrust Authority director's letter, and we have not been approached by the other banks."

Mizrahi Tefahot Bank said, "The Antitrust Authority director's response is not surprising. Mizrahi Tefahot Bank has long believed that the banks can, and should, sit down and draw up a joint solution. Where we'll meet is less important. We'll go wherever such a meeting is held, or we'll make the bank's offices available for it."

The banks are very cautious about dealing with IDB's debt, and are scrupulously keeping a low profile. Until now, the banks have cooperated with IDB controlling shareholder Nochi Dankner on IDB Development's financial covenants, and have not demanded a debt settlement with Tomahawk Investments Ltd., Dankner's private company at the top of the pyramid.

After the debt settlement by Bank Leumi with Ganden Investments Ltd., through which Dankner controls IDB, fell apart, the banks have tried to keep as low a profile as possible, in order to avoid facing the same kind of social protest that hit Bank Leumi in the Ganden affair.

Until now, the banks could use the excuse of regulatory restrictions to avoid drawing up a joint debt settlement for IDB Development, but that excuse was removed today. Nonetheless, it is doubtful if the banks will propose an alternative, because a joint settlement will put them in direct conflict with Dankner and the company's bondholders.

Published by Globes [online], Israel business news - - on May 29, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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