Sources inform ''Globes'' that York Capital Management sought to buy IDB Development Corporation's NIS 1.3 billion bank debts, in addition to the company's bonds that it bought. The US private equity fund approached the banks to buy the debt at a steep discount on its par value, but the banks rejected the offer. IDB Development owes Bank Hapoalim (TASE: POLI) NIS 780 million and a foreign bank NIS 500 million.
The banks have already written down most of the IDB debt. Most of the write downs were made at the top of the conglomerate's debt pyramid, which (from top to bottom) is IDB Development, IDB Holding Corp. Ltd. (TASE:IDBH), Ganden Holdings Ltd. and Tomahawk, through which Nochi Dankner controls Ganden. The four companies' total bank debt is NIS 2 billion.
In principle, since the banks have already written down the debt, its sale to York Capital would enable them to report recovery. However, they refuse to sell the debt because they apparently believe that, in the event of a debt settlement, they will get a higher price than York Capital offered. In addition, the sale of the debt to York Capital at a price lower than its full value is liable to face heavy media criticism, which would affect the banks' image.
Last week, York Capital senior managing director Jeremy Blank made a presentation about its intentions for IDB Development to the company's main bondholders, including Psagot Investment House Ltd., Harel Insurance Investments and Financial Services Ltd. (TASE: HARL), The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5), DS Apex Holdings Ltd. (TASE:DSAP), and Meitav Investment House Ltd.. Capital market sources who saw the presentation said that York Capital, which now owns a quarter of IDB Development's bond debt, has fundamentally changed how Dankner's company will have to repay its mountain of debt.
For example, information obtained by "Globes" indicates that York Capital believes that the solution to IDB Development's debt problem lies in measures needed at subsidiary Discount Investment Corporation (TASE: DISI). They include reducing its leverage by selling assets, buying back its bonds, and increasing the NIS 2 billion in cash held by subsidiary Koor Industries Ltd. (TASE:KOR).
York Capital also believes that control of Koor should be sold immediately, as should other Discount Investment subsidiaries: Elron Electronic Industries Ltd. (TASE: ELRN), Given Imaging Ltd. (Nasdaq: GIVN; TASE: GIVN), Property and Building Ltd. (TASE: PTBL) and its subsidiary Bayside Land Corp. Ltd.(Gav Yam) (TASE: BYSD1). However, York Capital believes that Discount Investment should keep agrochemicals maker Makhteshim Agan Industries Ltd. (in which Koor owns 40%), mobile carrier Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), and supermarket chain Shufersal Ltd. (TASE:SAE).
York Capital also believes that Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) should undergo a thorough recovery process, after years of failed management, and that it is not ready for sale at this time.
York Capital believes that IDB Development should buy out the minority shareholders in Discount Investment. IDB Development owns 73.9% of Discount Investment, and the public's 24.9% stake is currently worth NIS 205 million. York Capital believes that the sale of assets will reduce Discount Investment's net debt to NIS 2 billion. It currently owns NIS 5.7 billion, including NIS 4.9 billion in six bonds, and the rest to the banks.
Published by Globes [online], Israel business news - www.globes-online.com - on October 14, 2012
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