The controlling shareholder in the IDB group, Eduardo Elsztain, is attempting to put together a proposal for a general solution to the concern's liquidity crisis, sources inform "Globes". In the past few days, fears have been growing among IDB's creditors that the company is heading for a further debt arrangement, two years after the first one, despite investment since then of over NIS 2 billion by Elsztain and his former partner Moti Ben-Moshe, money that was used to repay debts and that in the event of a debt arrangement is liable to go to waste.
Yesterday, IDB Development's management discussed demands by the company's bondholders for an injection of capital by Elsztain to meet a payment due to Bank Leumi (TASE: LUMI) this Friday. The bondholders said that unless there was an injection of cash they would take legal steps against the company and its controlling shareholder for unfair preference of a creditor.
In order to gain a few weeks in which to formulate a general solution to the debt problem, Elsztain is expected today to give a commitment to participate in an NIS 15 million equity issue in return for cancellation of the bondholders meeting due to take place today. The bondholders are believed to be amenable to this. Sources in IDB say that Elsztain and his adviser Yariv Philosoph are working on a much broader move than securing the payment to Leumi, namely a general solution to the debt problem. What this will consist of is not clear, but the expectation on the market is that the proposal will include a substantial capital injection by Elsztain.
IDB Development called the bondholders meeting to present them with the expected effect of the cancellation of the deal to sell control of Clal Insurance on the company's ability to service its debt. This follows the withdrawal from the deal of China's Macrolink, and the expected sale of IDB's Clal Insurance stake on the stock market at a much lower price.
As mentioned earlier this week, the problematic reality surrounding IDB has become more critical with the breakdown of the deal to sell Clal Insurance and the junk yields on IDB bonds indicating a lack of confidence on the part of investors in its ability to pay its debt in full. A source in a financial institution said that as far as he was concerned "Elsztain will not be able to have a debt arrangement at the end of which he will continue to control the company. Either he finds the money for repaying the creditors, or they will take the company from him."
The proceeds of the sale of Clal Insurance were meant to be used to make payments to IDB's creditors, and without that cash there is considerable doubt over the company's ability to find other sources of finance. In 2016, IDB requires NIS 800 million and in 2017 a further NIS 700 million to repay its debts and break even on cash flow. The deal with Macrolink was to have brought NIS 2.5 billion for the controlling interest in Clal Insurance, while the current market value of the shares is about NIS 1.3 billion.
Published by Globes [online], Israel business news - www.globes-online.com - on January 12, 2016
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