Businessperson Eduardo Elsztain is trying to push through a party at interest deal at IDB Development-Discount Investment Corporation, in which he holds a controlling interest. The deal is aimed at increasing the IDB group's liquidity in order to avoid a going concern qualification to the group's financial statements.
IDB Development, which holds 50% of private real estate company IDBG, reported last Thursday that it had offered to sell this holding to Property and Building, which also holds 50% of IDBG.
IDB said that following a discussion of the matter by its board of directors, it had offered to begin negotiations with Property and Building for the purchase of all of its rights in IDBG. IDBG holds the Tivoli commercial and office real estate project in Las Vegas and adjacent land zoned for residential construction. IDBG finished the first nine months of 2019 with a $4.3 million loss, following a $69 million loss for all of 2018.
Property and Building is controlled by Discount Investment, a fellow subsidiary of IDB Development, and the deal is therefore a party at interest transaction requiring approval by most of the minority shareholders in Property and Building. The external directors of the two companies are slated to conduct the negotiations, with the help of external advisors to be hired by each company. IDB Development said that it had not offered any terms whatsoever for the deal to Property and Building, and had not yet received a reply from Property and Building, which announced separately that it was considering its response to the offer. IDBG's financials for the third quarter of 2019 listed the company's value at NIS 143 million.
An up-to-date appraisal attached to the third quarter report assigned a $237 million value to the Tivoli project, $11 million less than the previous valuation published at the end of March 2019. The difference between the valuation for the project and the valuation for IDBG is mostly attributable to $143.4 million in bank loans and $146 million in owners' loans on IDBG's balance sheet. Some of these owners' loans will be converted into shares in the near future according to a ration to be determined by an external valuer.
The reduction in value is attributable to a decline in rent from the project and a NIS 28 million loss posted on this holding in the third quarter. IDB Development lost a total of NIS 50 million on its holding in IDBG in the first nine months of 2019, following a NIS 69 million loss on this investment in all of 2018. The report also stated that the agreement that IDBG had signed in July to sell the adjacent residential land to Tivoli for $18 million had been canceled. Before signing the second agreement, a previous agreement to sell the land to a different buyer was canceled.
IDB Development subsidiary IDB Tourism fully owns Israir. Israir's international activity improve in the third quarter and first nine months of 2019, but its inland activity suffered a steep decline, resulting in a 25.5% fall in net profit to $11.1 million in the third quarter. Sales in the first nine months of 2019 dropped 5.3% to $234 million, while net profit plummeted 45% to $4.4 million.
In its balance sheet, IDB lists Israir as activity held for sale. According to IDB's projected cash flow report, it hopes to complete the sale of Israir for NIS 186 million in 2020 at Israir's current book value.
Published by Globes, Israel business news - en.globes.co.il - on December 1, 2019
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