Eduardo Elsztain thought he could succeed where dealmakers like Jared Kushner, Patrick Drahi and Matthew Bronfman didn’t: In Israel, the land of his business dreams.
The Argentine businessman has achieved plenty elsewhere. Back in 1990, it took him just an hour to persuade George Soros to give him $10 million to invest. He parlayed that and other investments into a holding company that by 1997 had made about $360 million in acquisitions. Then he and Soros picked up 25 percent of Argentina’s largest state-run mortgage bank in a privatization that ultimately gave them management control.
But in the Jewish state, he has spent five years and almost $700 million trying to turn around IDB Development Corp., Israel’s largest conglomerate. There’s no telling whether he’ll pull it off. He needs to sell a key asset to help repay $1.5 billion to debtholders in the next three years—while fighting regulators’ demands.
“Most people told me ‘Beware: you’re going to Israel and you will lose money.’ I heard it 1,000 times,” Elsztain, 57, said over a kosher breakfast at Bloomberg headquarters in New York in April, adding that he’s seen worse conditions in Argentina. “We are committed to this investment.”
If Elsztain succeeds, he’ll be turning recent history on its head. About 10 wealthy foreign Jews have foundered in Israel in the past few years, either paying too much for assets, or getting into conflict with regulators and partners, or walking away from deals.
An investor group headed by Bronfman, of Seagram liquor fame, sold out after 10 difficult years as majority shareholder of Israel Discount Bank. French billionaire Drahi helped start a mobile-phone price war that has dragged down the entire industry. And the presidential son-in-law’s Kushner’s Funding LLC walked away from talks to buy one of Israel’s biggest insurance companies in 2014 after Jared Kushner got a closer look at the country’s regulatory environment.
Representatives for Kushner Companies, Drahi’s Altice SA and Bronfman all declined to comment.
Such investors often don’t understand that without the help of local partners, their success at home doesn’t travel smoothly to Israel, said Rafael Gozlan, chief economist at Israel Brokerage & Investments Ltd., an institutional investor and IDB bondholder.
That’s increasingly true. The Jewish state has fallen 23 spots in the World Bank’s Ease of Doing Business Index in the last six years, to 52nd of 190 countries. One reason: Prime Minister Benjamin Netanyahu’s coalition has pumped out a host of consumer-protection laws since 2011, when Israelis protested against the rising cost of living and widening inequality. The consequence has been more regulations on business.
“You have to learn the rules of the game,” Gozlan said. “Maybe in Israel you need that more.”