IDB Holding Corp. (IDBH)’s 2020 bonds jumped, pushing the yield to the lowest in almost five months, after the company controlled by Israeli business tycoon Nochi Dankner reached a debt accord to avert default.
IDB Holding, which is struggling to meet payments on about 2.06 billion shekels ($560 million) of debt, offered to transfer 15 percent of the company’s shares to bondholders as well as inject 500 million shekels in cash. The debt framework also calls for three new bond series at a value of about 1.56 billion shekels to be issued, according to a filing to the Tel Aviv bourse today.
The yield on IDB’s 1.07 billion shekels of 5.1 percent bonds plunged 533 basis points, or 5.33 percentage point, to 48.34 percent, the lowest since Oct. 29, at the close in Tel Aviv. The shares rose 11 percent, the most since Feb. 20, to 12.47 shekels. The yield on Israel’s 4.25 percent benchmark bonds due March 2023 fell for the first time since March 4, declining one basis point, to 4 percent.
“This is not a day of celebration for bondholders as the company still has to show how it is going to make future payments,” said Yaniv Pagot, chief strategist at Ramat Gan, Israel-based Ayalon Group Ltd. “IDB is winning time and the controlling shareholder gets the chance to stay in place.”
Standard & Poor’s Maalot in December cut the holding company’s debt rating to default citing a “large gap” between its available funds and obligations. Argentinian businessman Eduardo Elsztain agreed in September to pay $25 million for 10 percent of IDB’s parent company Ganden Holdings Ltd., with the option of investing another $75 million.
The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, declined for a third day, easing 0.1 percent to 284.03.
Dankner saw IDB Holding shares plunge 74 percent last year, hitting a record low on Dec. 27, as a combination of unprofitable investments and regulations to boost competition prompted the company to disclose a “going concern” warning on Aug. 31. Tel Aviv-based IDB Holdings’ market value has dropped to 605 million shekels from 5.06 billion shekels at the end of 2010, according to data compiled by Bloomberg.
The debt agreement, which bondholders still need to approve at a general meeting, comes after the company’s investment unit IDB Development Corp. last week sold its stake in Clal Industries Ltd. (CII) to boost funding. Dankner, who has been seeking funds to avoid default, last year arranged the investment from Elsztain and sold an insurance company to a unit of Warren Buffett’s Berkshire Hathaway Inc. (BRK/B) for $221 million.
IDB Development bondholders earlier this month gave authorization to act on debt restructuring and to take legal steps as necessary after S&P Maalot in January cut the company’s rating to ilB, saying it may fall 1 billion shekels short of cash to cover liabilities in 2014. York Capital Management, the biggest IDB Development bondholder, suggested converting more than half of IDB debt owed to bondholders and banks into shares, Calcalist reported Feb. 10.
The yield on IDB Development’s 4.5 percent bond due June 2018 fell for the first time in four days, dropping 110 basis points to 20.13 percent
In the local debt market, the two-year break-even rate, the yield difference between the inflation-linked bonds and fixed- rate government debt of similar maturity, declined for the first time in three days, falling three basis points to 251 basis points. That implies an average annual inflation rate of 2.51 percent over the period. The government’s target range is between 1 percent and 3 percent.
One-year interest-rate swaps, an indicator of investor expectations for rates over the period, fell one basis point to 1.63 percent. The Bank of Israel last month kept interest rates at 1.75 percent. The shekel weakened 0.1 percent to 3.6799 to a dollar, trimming this month’s appreciation to 0.9 percent, the fifth-best performer among 31 major currencies tracked by Bloomberg.
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