Will Nochi Dankner seek a debt settlement?

Comment

Dankner foresaw the 2008 crisis but was taken by surprise in 2011.

Nochi Dankner cannot believe what is happening to him. He has an equity deficit of NIS 1 billion and NIS 1.7 billion losses in the third quarter alone, and the need to raise NIS 250,000 to meet his debts. The tycoon who sees himself as cautious and checks every business step dozens of times before deciding to move ahead, whose public image is so important to him and is used to being in the strong part of the market, is discovering the unpleasant side of the business world, and the heavy price to be paid when over-leveraged.

Dankner who was so proud that he foresaw the crisis in 2008 and brought IDB Holding Corp. Ltd. (TASE:IDBH) into the recession ready and prepared, and even managed to make a quick profit from his investment in Credit Suisse, did not see the latest crisis coming.

He came into the 2011 crisis as unprepared as it was possible to be: strongly leveraged in the Credit Suisse investment, which has lost a significant percentage of its value, grandiose hotel investments in Las Vegas have forced him to wipe off hundreds of millions of dollars, and with billions of shekels in debits, mainly in his bonds holdings.

All this, while the dividends yielded by the Group's cash, which are supposed to be the main the source of debt payments, are dwindling due to the economic slowdown and tighter regulation. To this must be added the recommendations of the committee on over-concentrations in the economy, which will hit IDB perhaps more than any other holding and investment group.

The capital market has not been slow to draw conclusions about the situation. IDB's share price has lost 60% since the start of the year. The Group's market cap today stands at just NIS 1.75 billion (less than Ratio Oil Exploration (1992) LP (TASE:RATI.L) or food flavor and fragrance manufacturer Frutarom Industries Ltd. (TASE: FRUT; LSE:FRUT; OTCBB:FRUTF)). Worse still, the Group's bond yields have jumped to 15% reflecting investors' serious concerns at the Group's ability to repay its debt.

So is Nochi Dankner on his way to a debt settlement? Bond yields teach us that the capital market believes that such a possibility exists. But don't even dare link such words to Dankner, who needs the capital market, places such importance on his image, and represents a conservative marker when it comes to debt settlements. He would be the last person to raise his hands and ask institutional investors for a debt settlement. And in the case of Dankner, despite the current situation, he does have resources to pay.

If he would finally agree to recognize failure in the current round of investment in Credit Suisse, and relinquish his stake in the bank, he would retain a billion shekel surplus (even after repaying the credit from purchasing the bank's shares). If he realized part of his stake in Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), he could equip himself with a good few hundred thousand shekels, and that's without talking about his holdings in Shufersal Ltd. (TASE:SAE) and Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), which have already been subject to sale talks.

But Dankner is in no rush to realize his assets. Not only is he not selling his Credit Suisse stake, he is even taking advantage of the opportunity to buy while the share is at a very low price, and over the past few weeks, he has bought hundreds of millions of shekel's worth of the bank's shares. Dankner is probably banking on a market recovery and rise in prices and doesn't want to realize assets while they are at their low point, especially while he is debt.

But if Dankner were to overcome his pride and sell some of his assets, even at a loss or low price, he could change the direction of the negative cycle working against him, because a credit crunch is frequently a psychological phenomenon.

A massive realization of assets and improving liquidity would create the impression of a tycoon who understands what he is supposed to do, and would restore market confidence in him, and perhaps would enable Dankner to repay and recycle his debts through the capital market.

If it does not get caught up in a severe recession or extreme catastrophe, IDB will survive the current crisis, but there is no doubt that the crisis has changed Dankner. IDB after the crisis will be more modest, leaner in its debts and will have less new investments.

Published by Globes, Israel business news - www.globes-online.com - on December 4, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018