June 3 (Bloomberg) -- IDB Holding Corp. countered bondholder efforts to wrest control of the debt-strapped Israeli company from Chairman Nochi Dankner with a plan of its own, pushing the company’s 2020 bonds to an 11-week high.
The Tel Aviv-based company, which is struggling to meet payments on about 2.06 billion shekels ($558 million) of debt, is offering to inject 540 million shekels in cash, according to an e-mailed company statement on June 1. Argentine businessman Eduardo Elsztain will make a $75 million investment and will share ownership with Dankner.
Bondholders of unit IDB Development Corp., including York Capital Management LP, joined hands to force a debt-to-equity swap to take over the company Dankner spent 15 years building. He turned a family business that made its fortune in table salt and real estate into a holding company which includes Israel’s biggest supermarket chain, Shufersal Ltd., and the largest mobile operator, Cellcom Israel Ltd.
“Dankner’s plan is preferable to IDB bondholders’ joint proposal, but the weak link is that it relies entirely on the certainty of the outside investor,” Avihay Hermon, a trader at Tel Aviv-based Israel Discount Bank Ltd., said yesterday by phone. “Even if the investment materializes, it isn’t clear how Dankner will be able to reach agreements, repay banks and retain control of the company.”
Businessman Elsztain said May 30 that after “maximum efforts” leading up to the investment, the final decision will be taken by bondholders and the court. The yield on IDB’s 1.07 billion shekels of 5.1 percent bonds due in December 2020 increased 161 basis points, or 1.61 percentage point, to 58.56 percent, at the close in Tel Aviv. The shares advanced 1.4 percent to 8.24 shekels in trading almost four times the three-month daily average. The benchmark TA-25 Index gained for the first time in four days, adding 0.4 percent to 1,227.60.
IDB Holding will issue 700 million shekels in bonds and debtholders will get a 10 percent stake in the company and another 10 percent in IDB Development as part of Dankner’s proposal. The combination of unprofitable investments and regulations to boost competition prompted IDB Holding to include a going-concern warning in its first-quarter earnings report on June 1. It also said that Bank Leumi Le-Israel Ltd. is calling for immediate payment of a loan to parent company Ganden Holdings Ltd.
The Israeli Securities Authority said yesterday bondholders are legally entitled to impose their debt restructuring proposal, if they can prove that IDB is insolvent. Under the terms of the joint bondholders’ takeover bid on May 24, IDB Development creditors would get 90 percent of the equity and IDB Holding creditors the remainder. IDB Development owes 6 billion shekels to bondholders and banks, according to a company statement.
IDB’s lenders, including Bank Hapoalim Ltd., Bank Leumi Le-Israel Ltd. and Israel Discount Bank Ltd., filed a court objection to the debtholder proposal, saying IDB Development isn’t insolvent and will be able to meet its commitments, Israeli daily Calcalist said yesterday. A spokeswoman for Bank Hapoalim declined to comment on the report. IDB Development owes Hapoalim, the country’s biggest lender by assets, 900 million shekels, including 150 million in guarantees.
“The banks’ objection is another development against the joint bondholders’ agreement and in favor of Dankner’s new proposal,” Raz Mor, a corporate debt analyst at Tel Aviv-based DS Securities & Investments Ltd., said by phone yesterday.
IDB Holding in March proposed a debt arrangement to transfer 15 percent of its shares to bondholders and to make a 500 million-shekel cash injection.
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