Dec. 24 (Bloomberg) -- IDB Holding Corp.’s 2020 bonds dropped, pushing the yield to a two-week high, after Standard & Poor’s Maalot cut the Israel’s holding company’s debt rating to default.
The yield on IDB’s 5.1 percent bonds soared 164 basis points, or 1.64 percentage point, to 59.85 percent, the highest since Dec. 6, at the close in Tel Aviv. Shares of the company’s investment arm Discount Investment Corp. fell 3.9 percent. The government’s 5.5 percent benchmark bonds due January 2022 advanced for a third day, pushing the yield down three basis points to 3.69 percent, the lowest on record.
S&P said there is a “large gap” between IDB Holding’s available funds and the obligations of the company, controlled by Nochi Dankner. IDB, which is struggling to meet payments on about 2 billion shekels ($534 million) of debt, agreed with bondholders this month to defer a 65 million-shekel payment on the 2020 notes to March 31 from Dec. 20.
“It is not clear how the company will be able to manage such a large debt pile,” said Raz Mor, a corporate debt analyst at Securities & Investments Ltd. in Tel Aviv, said by phone. “Investors are waiting to get some confirmation on the outside investments the company is hoping to get.”
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, was little changed at 279.94. The shekel gained 0.1 percent to 3.7445 a dollar at 4:32 p.m. before the Bank of Israel announces its interest rate decision at 5:30 p.m. local time.
The central bank will probably hold borrowing costs at 2 percent, according to 14 of 23 estimates compiled by Bloomberg. Eight analysts forecast a quarter-point cut, and one expects a half-point reduction.
One-year interest-rate swaps, an indicator of investor expectations for rates over the period, declined one basis point to 1.71 percent. The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government debt of similar maturity, advanced four basis points to 222, implying an average annual inflation rate of 2.22 percent.
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