Following opposition by the company's trustees, IDB Development Corporation Ltd. (TASE:IDBD) controlling shareholders Eduardo Elzstain and Moti Ben-Moshe agreed to exercise all their options, plus tens of millions of shekels more than they would have paid in an issue of rights, at an exercise price far above the market price of the IDB Development share. IDB Development accordingly reported that while it still planned to raise capital through a rights issue, it would be postponed to another date to be determined by the board of directors, probably next year.
A few days after calming down the shareholders of IDB Development and Discount Investment Corporation (TASE: DISI), Elzstain and Ben-Moshe, have had to face opposition by Discount Investment bondholders to the company's declaration of a NIS 200 million dividend.
Investment institutions holding Discount Investment bonds demanded early this week that the bond trustee convene a bondholders meeting to discuss the company's dividend policy. The meeting was held today in the IDB Group offices in Tel Aviv. Elzstain and Ben-Moshe, the co-chairmen of Discount Investment, did not attend the meeting, leaving the stage to CFO Michel Dahan, who has also been acting CEO since Lior Hannes resigned as CEO last year.
Dahan prepared a financial presentation for the meeting with a single point: showing how financially strong Discount Investment was, and its ability to meet its obligations to its creditors in the coming years. The presentation indicates that Discount Investment's current debt totals NIS 5.5 billion, and NIS 3.4 billion, net of its cash reserves.
According to the company's presentation, the market value of the companies held by Discount Investment is NIS 4.9 billion, greater than its net debt. Even after distribution of the dividend approved by the board of directors last week, the company claims that it will still have a NIS 1.3 billion surplus of assets over liabilities. By the end of 2016, Discount Investment will have to pay the banks and the bondholders NIS 2.1 billion. In Dahan's opinion, the company can bridge the gap in a variety of ways, including dividends from its subsidiaries, raising additional debt (given the low yields of up to 4.1% at which its bonds are traded), recycling debt, and selling investments, as necessary.
The list of Discount Investment's holdings includes primarily Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), Shufersal Ltd. (TASE:SAE), Property and Building Ltd. (TASE: PTBL), Elron Electronic Industries Ltd. (TASE: ELRN), Adama Holding Ltd. (TASE:ADMA.B1) (formerly Makhteshim Agan), and other investments, including Epsilon Investment House Ltd., units in investment funds, etc. In the past, Cellcom and Shufersal usually distributed dividends to their shareholders amounting to hundreds of millions of shekels, but business difficulties in recent years have dramatically reduced their dividends.
Shufersal has distributed NIS 320 million since the beginning of 2013, but Cellcom and Property and Building have distributed only NIS 85 million and NIS 60 million during that period, respectively. Elron recently distributed NIS 400 million, following the sale of its share in Given Imaging, and half of that amount went to Discount Investment, which probably supported the decision to distribute a dividend to its shareholders.
Discount Investment says that the dividend is not affecting its financial strength, and the large bondholders agree that the dividend is reasonable, and corresponds to the company's capabilities and distributable profits (NIS 545 million, after the current dividend).
Among the investment institutions holding Discount Investment bonds, however, some wished to deliver a clear message to the board of directors and new controlling shareholders that they would strongly oppose a permissive dividend policy, which they said was designed solely to improve the financial situation of IDB Development, the parent company.
Published by Globes [online], Israel business news - www.globes-online.com - on November 5, 2014
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