Dankner’s House of Cards : Pyramids Getting Ready to Tumble

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Eduardo Elsztain / Getty

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/ By Clive Minchom / 

The secured bondholders of IDBH (IDB), the top public vehicle in Dankner’s house of cards, voted on Sunday by a decisive majority to take control of the company and distribute its shares to the bondholders. Representatives of the company’s bondholders, which include an Investment House, a Pension Fund, and also representatives of private bondholders, are now preparing for the transfer of control to its bondholders to ensure a maximum return on the debt they are owed in the new circumstances of the company.

They did so at a preliminary bondholders general meeting which had convened with the permission of Tel Aviv District Court Judge Eitan Orenstin, who earlier on Sunday had set for IDB chairman Nochi Dankner and a possible alternative investor he may have found, Alexander Granovsky, a challenging requirement to deposit NIS 500 million as a guarantee within seven days to prove they are serious. The deposit is a condition for granting them an extension to draw up their own definitive proposal for a debt settlement for IDB. The Judge also ruled the fate of the company should be determined by Sunday August 25th.

However today the story has taken on yet another new twist, as it now emerges that the IDB Holding bondholders are in advanced talks with Argentine businessman Eduardo Elsztain himself, for a possible injection of NIS 770 million into the company in exchange for a 51% stake in IDB’s presently wholly-owned subsidiary IDB Development Corporation.

The IDB Holding bondholders representative will now put this idea to a vote by the bondholders themselves at a meeting to be held on Tuesday. By negotiating directly with Elsztain, the bondholders are clearly moving on and bypassing Dankner completely. After an earlier investment of $25 million in IDB, Elsztain had promised at that time to hold talks only with Dankner; presumably such an exclusive period has now expired.

The bondholders apparently want to take over IDB, through a distribution in kind of the shares of its subsidiary IDB Development which holds the operating assets of the company. At Sunday’s bondholders meeting, a majority of bondholders voted in favor of distributing IDB Development shares between them on the basis of the size of IDB Holding’s debt to each creditor. The shares are likely their primary security in fact, as the operating assets of IDB Development will be pledged to its own bondholders.

This manoeuvre frankly remains still a little unclear to this writer, but presumably, once having done so, perhaps they can then provide Elsztain with a holding in IDB Development directly through issuance of new treasury stock in IDB Development, for a 51% position, in exchange for the NIS 770 million which he would then inject in cash directly into IDB Development.

If this is indeed the plan, then it is conceptually possible it would then simply remove IDB Holdings from the top of the pyramid completely, and also bypass its very large unsecured banking creditors. This indeed may be the primary reason why this is plausible as an advanced option under consideration. Unless I am mixing things up here – which would not be impossible as it is quite a complicated omelette for any outsider to unscramble – there are also the IDB Development bondholders to consider, too. These are not an identical mirror set of the IDB Holding bondholders, but presumably they would be happy to see real money coming into the subsidiary wherever it comes from, and especially if it is not from Danker. Since they will have the hard security against the operating businesses of the company that is in itself important.

We will find out soon enough what exactly is going down, and whether Nochi Dankner himself has any weapons left at his disposal to respond with. At the moment though it isn’t looking good for him, one can surely infer from reading the tea leaves as they are at the moment.