Elsztain reapplies to control Clal Insurance as IDB losses grow

Eduardo Elsztain  photo: Eyal Izhar
Eduardo Elsztain photo: Eyal Izhar

IDB lost NIS 465 million in 2018, and its auditors warn about its ability to pay its debts beyond 2020.

Eduardo Elsztain continues his attempts to obtain a permit to control Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS). On Thursday, IDB, which Elsztain controls, reported that he had filed an application with the Commissioner of Capital Markets, Insurance and Savings for a permit.

The application relates to the 25.3% stake in Clal Insurance held by IDB, and additional Clal Insurance shares the subject of swap transactions by IDB (currently 28.9% of Clal Insurance). IDB states that Elsztain's application to the commissioner, Dr. Moshe Bareket, is for a permit to control Clal Insurance through a special purpose subsidiary to be formed by corporations controlled by the controlling shareholder, which will buy IDB's holdings in the insurance company.

The application also mentions other possible structures for holding Clal Insurance, through IDB or its sister company Discount Investment, to which Elsztain recently offered IDB's Clal Insurance shares.

IDB stressed that there was no certainty that the commissioner would approve the application, and hence no certainty as to which of the various possibilities for the holding structure will be used.

Elsztain bought control of IDB nearly five years ago, but did not succeed in obtaining a control permit for Clal Insurance from the previous commissioner, Dorit Salinger, who in fact ruled that IDB should sell its stake in the company. Bareket replaced Salinger last August, and Elsztain is now asking that the matter should be reviewed.

At present, the IDB-Discount Investment group is defined as a substantial non-financial corporation under the Concentration Law, because of its holdings in supermarket chain Shufersal Ltd. (TASE:SAE) and telecommunications company Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), and must therefore divest itself either of these holdings or of its financial holding, Clal Insurance, by the end of 2019.

Meanwhile, IDB has published its financials for 2018, showing a net loss for the year of NIS 465 million, following a loss of NIS 610 million in 2017. The loss in 2018 was mainly caused by a NIS 326 million fall in the fair value of the bonds issued by Dolphin IL to IDB against the purchase of control of Discount Investment, and a NIS 319 million fall in the fair value of the holding in Clal Insurance. In the fourth quarter of 2018 alone IDB lost NIS 224 million.

The losses resulted in a deficit on shareholders' equity at the end of 2018 of NIS 230 million, which compares with positive shareholders' equity of NIS 730 million at the end of 2017. Including the subordinated and convertible loans that IDB received from Elsztain, totaling NIS 529 million, shareholders' equity totaled NIS 299 million at the end of 2018, compared with NIS 1.25 billion at the end of 2017.

According to IDB, its net asset value (NAV) at the end of 2018 was NIS 102 million, and its leverage was 96%. Since then, the leverage has risen to NIS 101%, meaning that NAV is negative.

At the end of 2018, IDB had liquid assets totaling NIS 52 million and restricted deposits totaling NIS 621 million. The company's net financial debt was NIS 2.3 billion, with NIS 889 million due in interest and principle payments to bondholders in 2019.

According to IDB, the payments will be made with the cash it holds and with the assistance of NIS 213 million to be received from IDB Tourism after the sale of airline Israir, and NIS 526 million from the sale of shares in Clal Insurance. IDB will get through 2020 by selling further shares in Clal Insurance for NIS 143 million.

IDB's auditors warn that from 2021 IDB will be left with just three sources from which to pay its debts: the holding valued at NIS 190 million in real estate company IDB Group USA, which owns the Tivoli project in Las Vegas; 2.8 million shares in Clal Insurance currently worth NIS 134 million; and the bonds received from Dolphin IL for the sale of control of Discount Investment. IDB's ability to pay its debts from 2021 will therefore be dependent on factors beyond its control, particularly the value of the bonds and the cash flow from dividends from Discount Investment.

IDB's financials also show that Israir's revenue grew 2.5% in 2018 to $286 million and its net profit rose by 18% to $13 million.

Published by Globes, Israel business news - en.globes.co.il - on March 31, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Eduardo Elsztain  photo: Eyal Izhar
Eduardo Elsztain photo: Eyal Izhar
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