Argentina’s IRSA Wins Over Bondholders After Short-Seller Attack

  • IRSA Commercial Properties bonds rebound after debt deal
  • Spruce Point accused IRSA of exposing investors to losses

Argentine businessman Eduardo Elsztain’s bid to restore confidence in his real estate investment company is winning over bondholders. Stock investors are still feeling burned.

IRSA Commercial Properties’ bonds have rallied since the $360 million in notes were issued and its parent company, IRSA Inversiones & Representaciones SA, simultaneously bought back some of its own debt. The deal -- essentially a transfer of liabilities from the controlling company to the subsidiary -- reassured creditors by bolstering speculation they’ll be shielded from the financial troubles of another IRSA-controlled group, the Israeli conglomerate IDB Development Corp., according to brokerage AdCap Securities.

“It’s not 100 percent clear that IRSA Commercial Properties is completely safe” from claims related to IDB, said AdCap analyst Federico Ramos Taboada, “but there’s a new layer they’d have to go through.”

Short-seller Spruce Point Capital Management triggered a rout on IRSA bonds and its stock in November when it warned that IDB exposes the parent company to $6.7 billion in bankruptcy claims, which IRSA refuted. At the heart of the spat is whether IRSA is responsible for IDB’s debt and whether the acquisition of the bankrupt conglomerate triggered a debt covenant governing limitations on ‘acquired’ indebtedness. Spruce said it did. In an e-mail, IRSA reiterated its Nov. 24 statement when it said that IDB creditors have no legal right to its assets.

Bond Rebound

IDB was already operating under bankruptcy protection when IRSA took full control of the company in 2015.

While the bonds of both IRSA and IRSA Commercial Property have rallied, the company’s U.S.-traded stock is still trading below the level it was at before Spruce issued its warning on Nov. 20. The stock tumbled 47 percent in the three months through Jan. 20. It has since rebounded and is now down about 8 percent since the day before the statement.

Elsztain, who is chief executive officer and controlling shareholder of IRSA, received backing from billionaire George Soros early in his career and has a history of buying distressed assets on the cheap, including Manhattan’s iconic Lipstick Building in 2008. IRSA has said it has invested $515 million into Tel Aviv-based IDB, which has interests in real estate, communications, agricultural products, insurance and technology.

Asset Sales

Before the IDB investment will pay off for IRSA, Elsztain needs to unload some assets to lower debt, said Harald Haukas, who helps oversee about $4.5 billion in assets, including IRSA shares, at Norway-based fund Skagen.

While IDB said May 26 it received a non-binding offer for a controlling stake in an insurance unit, Elsztain has faced regulatory hurdles in trying to unload assets before. He came close to selling that unit last year, but the talks collapsed in January because of concern Israeli regulators wouldn’t issue a permit.

“It’s a great opportunity, but it’s risky,” Haukas said. “You need a sale of some assets, then the stock price will recover fully.”

IRSA said it’s still “uncertain” as to when investors will see the full benefits from its investment in the Israeli conglomerate.

“There is a huge potential in each of the operating companies” in the IDB group, IRSA wrote in an e-mailed statement. “We’ve been working on simplifying the structure to unlock value.”

Before it's here, it's on the Bloomberg Terminal.