The arbitration between Eduardo Elsztain and Moti Ben-Moshe, the controlling shareholders and co-chairmen in IDB Development Corporation Ltd. (TASE:IDBD), is about to begin. Sources inform "Globes" that following an exchange of emotionally charged letters, the two men agreed on a candidate for the arbitrator in the dispute that has arisen between them - a retired judge whose name has not yet been disclosed, because he has not yet agreed to accept the appointment.
The arbitration between Elsztain and Ben-Moshe is slated to concern Ben-Moshe's demand that Elzstain sell his shares to Ben-Moshe, due to his claim of an alleged breach of the controlling shareholders agreement between them. If the arbitrator does not accept Ben-Moshe's arguments, however, he is likely to attempt to steer the two men towards an agreed separation in which Elsztain will buy Ben-Moshe's holdings in the company.
Ben-Moshe has invested over NIS 700 million in IDB to date, while the shares and options in his possession are worth only NIS 130 million. It cannot be ruled out that a deal between the two partners, if one is reached, will include a substantial control premium above the market price for Ben-Moshe's shares, and a bigger compensation mechanism in the event of future improvement in the company's situation and its share price.
Equity down, leverage up
IDB Development has not yet published its financial statements for 2014, but its Discount Investment Corporation (TASE: DISI) subsidiary (a 74% stake) did so today, reporting a NIS 692 million loss. Most of the yearly loss was caused by a NIS 700 million write-down on the value of its 40% holding in pesticides manufacturer Adama Agricultural Solutions Ltd. (TASE: ADAMA) (formerly Makhteshim-Agan) to NIS 3.05 billion, following the recent failure to complete its flotation on the New York Stock Exchange.
It should be noted that the value of Adama in the Discount Investment report is calculated at $16 a share - the minimum price that the company sought for its offering, and which it did not receive from the investors. Discount Investment also wrote down NIS 248 million on its investment in Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), now worth NIS 1.84 billion, and NIS 176 million on its investment in Shufersal Ltd. (TASE:SAE), now worth NIS 1.14 billion. The write-downs were partially offset by a large profit on the sale of Given Imaging in early 2014.
The large loss, combined with a NIS 200 million dividend distributed by the company in November, were main factors in the 25% plummet to NIS 1.2 billion in Discount Investment's equity as of the end of 2014, and a rise in its balance sheet leverage to 81%, compared with 78% at the end of 2013.
On the way to selling assets?
Discount Investment had NIS 5.22 billion in liabilities against NIS 1.6 billion in assets at the end of 2014, and its repayments (interest and principal) to banks and bondholders by the end of 2016 amounted to NIS 1.5 billion. Since the beginning of 2015, Discount Investments has paid NIS 340 million to its creditors, and currently has NIS 1.26 billion in cash, while it will have to repay NIS 891 million in principal and interest to banks and bondholders by the end of March 2016. In view of the expected dramatic drop in its store of cash, Discount Investment management, headed by CEO and CFO Michel Dahan, stated that it was evaluating possible ways of refinancing its debt, withdrawing dividends from its subsidiaries, and selling assets.
Refinancing the debt does not appear possible at the moment, because Discount Investment's bonds are being traded at high yields to maturity of 9%-15%. Relying on dividends will also be difficult. The dividends distributed by Cellcom and Shufersal have been slashed over the past two years, following the slide in their business, and this situation will not materially change this year. NIS 271 million in dividends was obtained in 2014, mostly from Elron Electronic Industries Ltd. (TASE: ELRN) in 2014, compared with NIS 202 million in 2013.
Discount Investment is therefore likely to turn to a sales of assets, for example the sale of a large part of Property and Building Ltd. (TASE: PTBL), or the sale of its stakes in smaller subsidiaries, such as Elron and Epsilon Investment House Ltd. (which contributed only NIS 3 million to Discount Investment's bottom line in 2014), or Credit Suisse's EMCO fund, which provides loans to businesses in developing countries. Another possibility is the sale of substantial assets in Elron and Property and Building, and the distribution of the resulting profit as a dividend, or even the sale of Shufersal's real estate.
Published by Globes [online], Israel business news - www.globes-online.com - on March 26, 2015
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