IDB 2020 Bonds Fall to One-Week Low After Creditors Halt Talks

IDB Holding Corp. (IDBH) 2020 bonds dropped, sending the yield to the highest level in more than a week after bondholders halted debt settlement talks. Government bonds rose.

The yield on IDB’s 5.1 percent notes maturing December 2020 soared 85 basis points, or 0.85 percentage points, to 52.93 percent, the highest since Jan. 27 at 2:20 p.m. in Tel Aviv. The yield jumped 46.7 percentage points last year. The yield on the 4.25 percent benchmark government bonds due in 2023 fell three basis points to 4.09 percent.

Debt talks were suspended after bondholders criticized a decision by IDB parent Ganden Holdings Ltd. to give businessman Eduardo Elsztain more time to exercise an investment option if a deal with creditors isn’t reached by Feb. 20. The breakdown in negotiations comes as the IDB seeks funds through means such as asset sales, including a stake in Clal Industries & Investments Ltd., to avoid defaulting on 2 billion shekels ($542 million) of debt.

“There is uncertainty about Elsztain exercising the investment as it is not clear if the company will be able to come to an agreement with bondholders,” said Raz Mor, a corporate debt analyst at DS Securities & Investments Ltd. in Tel Aviv. “Further it is difficult to see how IDB will be able to raise more funds to repay debt.”

One-Sided

IDB bondholders may resume talks only after details of the accord with Elsztain are clarified and IDB pledges not to take more one-sided decisions, according to a text message today from creditors representative Eran Yoels. Elsztain, an Argentine businessman, agreed in September to pay $25 million for 10 percent of Ganden Holdings, with the option of investing another $75 million by Feb. 20. The agreement now gives him until April 10 to decide whether to make the additional investment.

IDB said it expected negotiations to “last a few more weeks,” according to an e-mailed statement. “We will continue to do every effort to reach a fair debt settlement in a short period of time.”

Standard & Poor’s Maalot on Jan. 17 cut IDB Development Corp’s rating, a unit of the company, by three levels to ilB, five levels below investment grade, citing “weak” funding and unsustainable high leverage. IDB Development may fall 1 billion shekels short of cash to cover debt and costs in 2014, S&P said.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, rose for a fourth day, increasing 0.1 percent to 282.76. The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government debt of similar maturity, declined three basis points to 221, implying an average annual inflation rate of 2.21 percent.

The shekel was little changed at 3.6907 a dollar. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, fell three basis points to 1.74 percent.

To contact the reporter on this story: Sharon Wrobel in Tel Aviv at swrobel4@bloomberg.net

To contact the editor responsible for this story: Alaa Shahine at asalha@bloomberg.net

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