IDB board approves Eduardo Elsztain’s rescue plan

The plan calls for an immediate about $201 million rights issue. Moti Ben-Moshe: This is a PR exercise.

IDB board approved the proposal of one of the controlling shareholders, Eduardo Elsztain, for an immediate about $200 million cash injection through a rights issue, in an attempt to rescue the group from the financial mire. Elsztain believes that the only way the company will be able to meet its commitments is by raising a significant amount of capital.

The share price of IDB Development has shot up by more than 65% in the past three trading sessions, but lost 54% in the three months before that, amid a series of negative events that placed in doubt its ability to continue to survive. This is against a backdrop of a severe disagreement between the two controlling shareholders, Elsztain and Moti Ben-Moshe, which up to now has prevented any possibility of a change in the trend.

IDB Development currently has a market cap of just $151 million, with Elsztain and Ben-Moshe‘s holdings reflecting a paper loss for the pair of more than $256 million on an investment of $358 million they have made so far in controlling the hemorrhaging group.

Today, as part of the new plan proposed by Elsztain, the board approved an immediate $201 million rights issue. In addition, the existing owners will receive options that, if fully exercised, will raise the amount raised by the company to $307 million. Elsztain himself undertook to take up his rights in full, amounting to $65.6 million, and he will invest a further $36.9 million by buying rights from shareholders who elect not to exercise them.

In addition, the plan provides for a possible additional rights issue of up to $117.9 million, should the company fail to raise as much as it seeks in the first one. Elsztain also undertook that, within 6-12 months of the rights issue, IDB management could ask him to exercise all his series A options for $38.4 million, to be injected into the company.

The options will be exercised only if the banks agree to change the financial criteria to which the company committed itself in the past, and the Supervisor of Capital Markets and insurance agrees to give IDB a permit to control Clal Insurance.

It looks as though Ben-Moshe and Elsztain now want to end the business romance between them, which was a failure from day one. Ben Moshe believes that they should separate for the good of the company and that he should be left in sole charge, whereas Elsztain, who feels that he has the deeper pockets, is trying to achieve control of the group through cash injections that boost his stake at his partner’s expense.

Either way, the two men are currently in a cul-de-sac, increasing the uncertainty for the company’s minority shareholders and its bondholders. IDB has $71.7 million cash, and it needs a further $179.4 million to meet its commitments to the banks and bondholders in 2015.

The Moti Ben-Moshe group said in response, “Unfortunately, Elsztain’s proposal does not deal with the company’s real needs other than in a partial and limited way. The pre-conditions set out in section 5 of Elsztain’s proposal are liable to empty it of all content, and the violent way in which it is presented as a two-day ultimatum leaves the impression that more than a serious, what we have here is a public relations announcement the aim of which is to frustrate the plan that the company is trying to formulate together with the Supervisor of Insurance and Capital Markets concerning Clal Insurance, for the benefit of all interested parties in the company.” Nevertheless, as mentioned, the proposal was approved by the board today.

Published by Globes [online], Israel business news – www.globes-online.com