Directives proposed by the Bank of Israel to limit the use of non-recourse loans could kill efforts by Ganden Holdings to take over IDB Holding Corporation, according to information TheMarker has discovered.
The Bank of Israel's Supervisor of Banks proposes to raise the minimal shareholders equity of the borrower to 50% of the transaction, from the current 30%. That would require the Ganden-led consortium, headed by businessman Nochi Dankner, to come up with $100 million to $200 million more equity.
Supervisor Yitzhak Tal also proposes stringent changes to the way equity is calculated, and to impose strict restrictions on leveraged buyouts. Some of Israel's banks could find themselves outside the limits of the new directives.
Regarding non-recourse loans, the new limitations would apply to money borrowed to buy out companies of all kinds, but the rules will be even stricter in respect to acquiring financial institutions.
According to the draft proposals sent to the banks on June 13, a copy of which TheMarker has obtained, the Bank of Israel intends to limit non-recourse financing to 50% of each transaction, as opposed to 70% today. In the case of banks, the central bank proposes that bank credit provide no more than 30% of the cost, that the loan comprise no more than 5% of the lender's equity, and not exceed 5% of the equity of the acquired bank.
The commercial banks and the Bank of Israel stress that the proposals are just that: the central bank expects the banks to critique the document and raise objections. Many changes could yet be made in the proposals before their enactment, the central bank points out.
Another new regulation would limit total non-recourse lending by any bank to 50% of its total capital. Moreover, the banks would be required to keep track of such loans granted for the purpose of LBOs in the past. These two requirements could mean that certain banks have already passed their limit.