IDB Development is moving towards another debt arrangement. Following the decline in the markets sparked by the coronavirus, the company, controlled by Eduardo Elsztain, stated today, "There is a real risk that the company will not have sources from which to pay its debts." The company's audit committee has therefore notified Elsztain that it is exercising the right to a payment from him under the terms for the bond that he issued to IDB through Dolphin, his private company, when Dolphin acquired IDB subsidiary Discount Investment Corporation.
The announcement states that the IDB is "exercising its right to acceleration" and "calling for NIS 40 million of the current adjusted debt… so that the company will have enough available liquid means to make its upcoming debt payment to the secured creditors, while its immediate liquidity needs are NIS 40 million."
IDB has three bonds series totaling nearly NIS 2 billion, traded at yields ranging from 55% to 135%.
IDB said that its announcement was being issued now "following developments in the market that affect the company's position, and additional business developments affecting its projected cash flow in recent weeks." The audit committee states that, "The company is in an 'insolvency environment.'"
With respect to the payment required from Elsztain, who has already invested NIS 3 billion in IDB since acquiring control of the company, the audit committee adds, "This payment does not constitute all of the company's rights to receive additional cash through its right to acceleration of such a payment. The company reserves its full rights in this matter, including the right to request more cash at any time, according to its needs."
IDB does not directly hold the controlling shares in Discount Investment, after selling them to Dolphin in 2017 for NIS 1.7 billion in order to bypass the requirements of the Promotion of Competition and Reduction of Concentration Law. The sale was backed by bonds received by IDB from Dolphin, so that the sale proceeds have not actually been paid yet. According to the bond terms, IDB can demand early repayment of up to 15% of the loan if it lacks the means to meet its financial obligations.
The decline in IDB unit Clal Insurance's share price led the financing banks to demand that IDB add NIS 32 million to the attached deposits, under the terms of IDB's swap deal in Clal Insurance's shares, and for the guarantees provided by Dolphin to the financing concerns in order to enable these deals to go through.
The banks' demand follows an announcement earlier this month by IDB of the deposit of additional guarantees by Dolphin "in accordance with the undertakings in the swap deals for Clal Insurance shares."
IDB stated, "The company is considering all of this and in coordination with the trustees for the company's bond series (9, 14, and 15), a meeting of bondholders will be summoned, at which the company's management will provide information."
Published by Globes, Israel business news - en.globes.co.il - on March 15, 2020
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