Dankner on verge of losing control over IDB after Eduardo Elsztain withdraws

The news that Jewish Argentinian businessman Eduardo Elsztain would not be investing more in Nochi Dankner's struggling IDB group late Thursday night sent the latter scrambling over the weekend.

"Eduardo Elsztain indeed said he would not be increasThe news late Thursday that Jewish-Argentinian businessman Eduardo Elsztain would not be investing more in Nochi Dankner’s struggling IDB group sent the latter scrambling over the weekend.

After nearly a year of meetings with Dankner − and one day after he was appointed deputy chairman of IDB Holdings and IDB Development − Elsztain decided not to invest any more money in Dankner’s ailing company. Elsztain had initially invested $25 million in IDB last September with rumors of more funds to come.

Dankner is struggling to maintain control of the IDB group, Israel’s largest corporate conglomerate. IDB Holdings owes bondholders NIS 2 billion, which many believe it cannot pay. The company has been trying to negotiate a debt arrangement with bondholders, who are haring to take the reins from Dankner.

Today, representatives of IDB Holdings and IDB Development’s bondholders are expected to submit a proposal to the court that would give IDB Holdings’ bondholders control of that company, delist IDB Development from the stock exchange and do away with that company’s executives, and put them at risk of lawsuits from creditors.

Together, the two companies owe NIS 8 billion to bondholders and banks.

Eyal Gabbay, the court’s financial expert, is expected to analyze the proposals and submit his opinion to the court by July 21. In addition, IDB Development has until August 22 to find a buyer for at least half of its holding in Clal Insurance, in order to bring in at least NIS 4 billion. The final, decisive hearing is scheduled for August 25.

On Friday, Dankner expressed his disappointment in Elsztain’s move but vowed to present bondholders with a new offer.

“Eduardo Elsztain indeed said he would not be increasing his investment in IDB. It’s not pleasant when a partner you counted on making such a big investment with you parts ways with you two days before your joint proposal,” Dankner told Channel 2.

“Despite that, I’m sure that by Sunday we’ll submit an even better proposal to the bondholders,” he said.

Elsztain invested $25 million − NIS 100 million − in IDB’s parent company, Ganden Holdings, last September, giving him a 10% share. He had been expected to invest some NIS 700 million in IDB alongside other investors. At this point, it appears that Elsztain’s investment in Ganden may be a total loss.

The parties enjoying Elsztain’s “donation” are IDB Holdings’ series B2 bondholders, who received a NIS 40 million payment, and banks Leumi and Mizrahi-Tefahot, which received NIS 40 million and about NIS 20 million respectively in return for loans to Ganden.

No one − not Elsztain, not Dankner and not IDB’s management − ever provided an explanation as to the financial logic behind Elsztain’s planned investment. It’s also not clear what motivated him to back out now. One possible explanation is that the pending deal with Elsztain bought Dankner time vis-a-vis the creditors.

Sources close to IDB said Elsztain ultimately backed out because he didn’t want to get involved in an affair playing out in the media, in regulators’ offices and the courts. But others said Elsztain had thought from the start that a relatively small investment of NIS 100 million could give him control of IDB and enable him to push through debt settlements with potential for future profits. As time passed, he came to understand that the investment would need to be significantly larger than he’d thought, and the profit much less certain, said sources.

In nonbinding votes, more than 90% of IDB’s bondholders indicated Thursday − before they learned Elsztain was backing out − that they would rather take over the company than reach a deal with Dankner.

The representatives of IDB Development’s bondholders sent a sharply worded letter to management on Saturday, demanding an immediate report detailing why Elsztain had backed out.

“Elsztain’s flight is even more proof that IDB isn’t solvent,” they stated on Friday. “After a year in which the controlling shareholder dragged his feet and harmed the rights of the saving public, it turned out on Saturday that Elsztain had fled. Nochi Dankner’s era at IDB is over, and now all the company’s creditors need to take responsibility and ensure the country’s largest company is managed with certainty, transparency, fairness and decisiveness.”

Under Dankner’s most recent proposal last week − before Elsztain withdrew − bondholders would receive NIS 170 million from IDB Holdings’ kitty and another NIS 75 million to be invested by Elsztain, alongside 49% of IDB Development’s stock. IDB Development is IDB Holdings’ only asset. The remaining 51% would have been held by Dankner and Elsztain.

The bondholders’ representatives called on the banks − IDB’s other big creditors − to work with them in order to make sure that all the company’s lenders get their money back. The court is yet to rule IDB Development insolvent.ing his investment in IDB. It's not pleasant when a partner you counted on making such a big investment with you parts ways with you two days before your joint proposal," Dankner told Channel 2 on Friday.

"Despite that, I'm sure that by Sunday we'll submit an even better proposal to the bondholders," he said.

Elsztain, who invested $25 million in IDB’s parent company, Ganden Holdings, last September, had been expected to invest some NIS 700 million in IDB alongside other investors.

IDB group company IDB Holding owes its bondholders NIS 2 billion, which many believe it cannot pay.

In nonbinding votes, more than 90% of IDB’s bondholders indicated Thursday, before they learned Elsztain was backing out, that they would rather take over the company than reach a deal with Dankner.

"Elsztain's flight is even more proof that IDB isn't solvent," responded the representatives of IDB Development's bondholders on Friday. "After a year in which the controlling shareholder dragged his feet and harmed the rights of the saving public, it turned out [Thursday] that Elsztain had fled. Nochi Dankner's era at IDB is over and now all the company's creditors need to take responsibility and ensure the country's largest company is managed with certainty, transparency, fairness and decisiveness."

Under the most recent proposal in the works as of last week, bondholders would receive NIS 170 million from IDB Holding's kitty and another NIS 75 million to be invested by Elzstain, alongside 50% of IDB Development's stock. IDB Development is IDB Holding's only asset. The remaining 50% would be held by Dankner and Elzstain.

The bondholders' representatives called on the banks - IDB's other big creditors - to work with them in order to make sure that all the company's lenders get their money back.

The court is yet to rule that IDB Development is bankrupt.