The auditors of holding company IDB Development, owned by Eduardo Elsztain, have appended a going concern qualification to the company's financial statements for 2019.
In the statements released yesterday evening, the auditors write that the reasons for the qualification are to do with IDB's financial position, its cash flow, and its ability to service its debts. They point out that the company has a deficit on shareholders' equity and that its net asset value (NAV) is a negative NIS 1.2 billion.
IDB Development posted a loss of NIS 424 million for 2019, following losses of NIS 465 million in 2018 and NIS 626 million in 2017. At the end of 2019, the company's deficit on shareholders' equity was NIS 335 million.
Thus, seven years after the completion of the group's first debt arrangement, when it was controlled by Nochi Dankner, it is close to second debt arrangement, this time under Eduardo Elsztain, who has injected some NIS 3 billion into the group to date.
According to the projected cash flow report attached to the financial statements, IDB Development needs to obtain additional sources of cash amounting to NIS 212 million in order to meet its liabilities in 2020, and a further NIS 171 million in order to meet its liabilities in 2021.
The company says that possible sources are the sale of its holding in IDB Tourism (parent company of airline Israir), the sale of its remaining holding (25.82%) in real estate company IDBG; the sale of its holding in energy exploration company Modiin; the sale of its shares in Clal Insurance; and remittances from Elsztain's company Dolphin (subject to distribution of a dividend by sister company Discount Investment, or expedited payment on account of the sale of Discount Investment shares in the past).
IDB Development stresses however that the sharp decline in the market price of the securities of its portfolio companies in recent weeks make implementation of such a plan difficult at this time, and so there is no certainty that the additional sources of cash that it requires will be found.
IDB Development owes its bondholders NIS 2.03 billion.
Discount Investment has also released its financial statements for 2019, showing a net profit attributable to shareholders of NIS 14 million. Its shareholders' equity shrank last year by some NIS 500 million to NIS 1.82 billion at the end of the year.
Discount Investment's main holdings are in listed companies, among them Shufersal, Properties & Building, Cellcom, and Mehadrin. At the end of 2019 its assets totaled NIS 4.11 billion, but following the recent declines on the stock market, their value has shrink to just NIS 3.03 billion.
At the same time, Discount Investment's debt has grown by NIS 126 million in the past three months to some NIS 3 billion, so that its NAV was down to just NIS 33 million at the end of March, and its leverage ratio (loan to value) had shot up to 99%.
Discount Investment, which is supposed to be one of the main financial resources for IDB Development, had distributable profits at the end of 2019 amounting to NIS 334 million, and liquid assets of NIS 676 million, but its series 6 and 10 bonds are currently traded at yields to redemption of 14% and 12%, placing in doubt the company's ability to distribute its cash to its shareholders.
Published by Globes, Israel business news - en.globes.co.il - on April 1, 2020
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