Time is running out for the IDB group, and the company controlled by Eduardo Elsztain is nearing official insolvency. At the end of this month, IDB Development is due to pay NIS 169 million in principal and interest to the holders of its series 14 and 15 bonds, but it does not have the cash, because of Elsztain's decision to delay cash injections and payments to the company.
Last week, Dolphin, through which Elsztain holds IDB, was due to inject NIS 70 million into the company, under a commitment given last year. In addition, IDB reported last month that, by the end of 2020, Dolphin was due to transfer to it a further NIS 18 million on account of interest on the seller's loan that Dolphin received in order to acquire Discount Investment from IDB.
These sums have yet to be transferred, and because of this IDB began September with just NIS 5 million cash. Since then, IDB has managed to sell 3.5% of Clal Insurance for NIS 77 million, so that it now has NIS 82 million in cash.
Nevertheless, for the purposes of meeting its debt repayments at the end of September, cash injections are required from Elsztain that have not materialized. Last Thursday, IDB reported that it had written to Dolphin and its parent company IRSA about the failure to inject the NIS 70 million and warned of legal action. Elsztain, however, does not wish to continue injecting cash into IDB until the bondholders agree to the debt settlement he proposed, which involves a huge haircut for them.
Insolvency or postponement of the inevitable
Elsztain is now in a trap, because of his earlier undertaking and the lack of confidence in him on the part of capital market investors, in the light of his unsuccessful attempts to improve IDB's situation. Should he decide not to inject the additional amounts, IDB Development will be insolvent at the end of September, while if he submits to the bondholders and eventually does inject the cash, he will only postpone the company's demise by three months.
Through Dolphin and IRSA, Elsztain has already invested the huge sum of NIS 3 billion in Israel in his attempt to stabilize the IDB-Discount Investment pyramid, and despite that he is, as mentioned, close to losing control of it, just like Nochi Dankner, his predecessor. IDB has four assets marked for sale (100% of Israir, 25.8% of real estate company IDBG, a holding in the Modiin Energy partnership, and 5% of Clal Insurance), and another, indirect holding that Elsztain wants to keep: control of Discount Investment.
Discount Investment has controlling stakes in Property & Building, Cellcom, Mehadrin, Elron, and Epsilon. Without it, Elsztain will have no substantial activity in Israel. But 70% of the shares of Discount Investment are mortgaged to the series 14 bondholders, and they are in no hurry to agree to the debt settlement proposal.
IDB owes the series 14 bondholders NIS 800 million. Elsztain offered them early repayment of NIS 320 million and deferment of the principal balance to 2023-2026. IDB owes the series 15 bondholders, to whom 5% of the shares in Clal Insurance and NIS 77 million cash are mortgaged, NIS 237 million.
Elsztain is now offering the series 15 bondholders repayment of the cash on which they hold a lien (after deducting bond interest) and deferment of the principal balance to 2022 (NIS 45 million) and 2026 (NIS 188 million). The series 15 bondholders will hold a special meeting tomorrow to discuss Elsztain's settlement proposal and the steps available to them.
74% haircut for series 9 bondholders
At present, however, the main opposition to Elsztain's settlement proposal is coming from the unsecured series 9 bondholders, to whom IDB owes NIS 909 million. Elsztain is offering them full redemption of the series for just NIS 240 million, meaning a haircut of NIS 670 million, or 74%.
At a consultation meeting held by the series 9 bondholders yesterday, fierce opposition was expressed by the bondholders' representative.
Elsztain gave the holders of the three bond series a fairly short time to indicate approval of his proposed settlement, until September 21, after which the proposal will expire. IDB has a debt of NIS 2.03 billion to the bondholders of the three series, and at the end of June it presented negative shareholders' equity of NIS 1 billion and a negative net asset value of NIS 862 million.
IDB could have been in a better place as far as cash flow is concerned had it managed to sell airline Israir. Sources inform "Globes" that during the coronavirus crisis Elsztain has received offers to buy Israir for NIS 100 million ($29 million), but he has refused them. According to IDB's cash flow projections, it seeks more than NIS 119 million ($35 million) for the airline.
IDB's financials carry a going concern qualification from its auditors, and all these factors will make it very hard for Elsztain to persuade the court that the company is solvent, should the bondholders instruct the bond trustees to begin insolvency procedures against it. Elsztain's decision not to inject the promised cash into the company without the bondholders' agreement to his proposal will probably spell doom for his huge investment in Israel.
Published by Globes, Israel business news - en.globes.co.il - on September 7, 2020
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