Moti Ben-Moshe has been ousted as chairman of IDB Development Corporation Ltd. (TASE:IDBD), after Eduardo Elsztain made further cash injections into the company conditional on him being recognized as sole controlling shareholder.
IDB Development announced today that, in response to an ultimatum by its bondholders, Elsztain had agreed to bring forward from July to the current month the injection of NIS 150 million into the company that he had previously promised (through an exercise of options), as demanded by the trustee for the bondholders. Elsztain also announced that he was willing to inject an additional NIS 100 million into IDB in the coming months through a share offering.
On the way to a debt arrangement?
Elsztain’s offer was contingent on being recognized as the sole controlling shareholder in IDB Development and his appointment as sole chairman, thereby ending Ben-Moshe’s term as co-chairman. He also asked the board of directors to establish a committee composed of board members to conduct talks with the bondholders. The trustee’s demand for earlier payment by Elsztain was made recently, following concern that the company would run out of money soon, leading to a situation in which IDF Development would require an additional debt arrangement.
The bond trustee, Hermetic Trust (1975), yesterday sent a letter to the IDB board demanding an immediate undertaking by Elsztain to bring forward his cash injection; otherwise, the bondholders will convene to consider further measures. The letter stated, “Beyond the problems stemming from the company’s challenging financial state, to say the least, the disputes between the controlling shareholders, and between them and the board of directors, are worrying, and are creating deep concern about the company’s ability to meet its obligations to its bondholders fully and on time.”
The figures cited in the trustee’s letter indicate that IDB Development had NIS 550 million in cash and financial obligations totaling NIS 770 million to pay by the end of the year, NIS 430 million of which is due for payment at the beginning of July. IDB Development has three bond series totaling NIS 3 billion trading at yields ranging from 14% to 30%.
Losses of over NIS 1 billion
Elsztain and Ben-Moshe acquired control of IDB Development last year as part of a debt arrangement at a cost of NIS 1.8 billion to date. As demanded by Elsztain, the company held a rights issue amounting to NIS 806 million in early 2015, but only a little over half this amount was actually raised, after Ben-Moshe elected not to take part in it. A week later, Ben Moshe demanded that Elsztain sell his share in the controlling interest to him, alleging violations of the agreement between them. Elsztain was unwilling, and the two men entered an arbitration proceeding conducted by Dr. Amiram Benyamini, who began his work a week ago.
Following the rights issue, Elsztains’ stake ballooned to 61.5% of IDB Development’s share capital, while Ben-Moshe’s stake was diluted to only 16.2%. The two men’s aggregate holdings have a current market value of only NIS 600 million, giving them a NIS 1.2 billion loss on paper.
Exactly a year after the debt bailout for IDB Group was put in place, installing Eduardo Elsztain and Moti Ben-Moshe as controlling shareholders, Ben-Moshe has been pushed out of his post as joint chairman.
The board voted late Thursday to oust Ben-Moshe as co-chairman of IDB Holding Corporation, the company that sits atop the group. That leaves Elsztain, an Argentine real estate magnate, as the sole chairman and controlling shareholder. Ben-Moshe remains on the board but only as a director.
The stock market cheered the decision on the assumption that it would end months of bitter disputes between the two men that slowed efforts to inject more capital into IDB and turn it around. On Sunday, IDB Holding shares jumped 7.1% to close at 1.52 shekels (39 cents).
The board voted after Elstzain conditioned injecting a further 250 million shekels ($64.6 million) into IDB on his being named sole chairman. Without the money, IDB might have been forced to seek a new debt accord with creditors.
Elsztain’s demand was triggered by Hermetic Trust Services, which called on Elsztain to move forward a first payment of 150 million shekels to May 20 from a July 19 deadline.
Hermetic, which represents holders of long-term bonds, was concerned that cash reserves at an IDB Holding subsidiary, IDB Development Corporation, had shrunk to just 100 million shekels after short-term bondholders were repaid some 400 million shekels.
Elsztain is injecting the additional capital into IDB Holding as part of the 417-million-shekel rights offering he engineered for IDB over Ben-Moshe’s objections in February. Ezlstain took part, increasing his IDB stake to 61.5%, while Ben-Moshe refused, cutting his stake to just 16.2%.
Elsztain will be handing over another 100 million shekels to IDB in October or November when the next cash call of the rights offering is due.
In the meantime, IDB’s finances remain shaky, which moved the board Thursday to appoint a committee to negotiate with bondholders and banks. The idea is to adjust the benchmarks for the company’s financial performance that would let creditors call in loans early.
Another committee was named Thursday to develop a business and financial strategy for the holding company, whose assets include Super-Sol, Israel’s biggest food retailer, and Cellcom, its biggest mobile operator.
The latest 250-million-shekel cash injection puts Elsztain’s total outlay for IDB at more than 1.35 billion shekels. With IDB’s market value at about 870 million shekels, the Argentine’s holding is worth about 530 million, not counting the 250 million he might inject. As a result, Elsztain has run up a paper loss of about 600 million shekels on his investment.
Ben-Moshe, an Israeli who made his fortune in Germany, has invested 700 million shekels in IDB and now has a paper loss of 550 million.
The two men were divided by different business styles and strategies for IDB, which is weighed down by debt of 4 billion shekels largely accumulated under its previous controlling shareholder, Nochi Dankner, and by problems at many of its biggest subsidiaries. Its bonds trade at junk yields of 14% to 28%.
Elsztain and Ben-Moshe are now in arbitration over the terms of the February rights offering that cut down Ben-Moshe’s holding, which observers say is likely to lead to a final breakup of their partnership.