Elbit Bond Yield Soars Most in 3 Months on S&P Rating Downgrade

Elbit Imaging Ltd.’s 2020 bonds fell, lifting the yield up the most in more than three months, after Standard & Poor’s Maalot cut the real estate investor’s credit rating amid concern on upcoming debt payment ability. Benchmark government bonds rose.

The yield on Elbit Imaging’s 5 percent notes due April 2020 soared 500 basis points, or 5 percentage points, the most since Sept. 27, to 49.80 percent at the 4:30 p.m. close in Tel Aviv. Its shares slumped 9.4 percent. The government’s 5.5 percent bonds due January 2022 rose, pushing the yield down three basis points to 3.63 percent.

S&P on Dec. 27 cut Elbit’s rating to ilB, seven notches above default, from ilBBB saying the company’s weak liquidity is putting pressure on its ability to serve its debt in the coming year. The deterioration in financial flexibility also results from a delay of asset sales by its Netherlands-based unit Plaza Centers NV limiting the possibility of dividend payments, S&P said. Plaza Centers’ rating was lowered to B- from B and placed on creditwatch negative by S&P.

“The company will need to come up with a solution to its liquidity issues and maybe advance asset sales,” said Avihay Hermon, a bond analyst at Psagot Investment House Ltd.

Elbit, which will need to make 640 million shekels ($169 million) in principal and interest payments in 2013, has a cash flow of 82 million shekels, according to S&P. Elbit, which through its Plaza unit, develops shopping malls and other properties in central and eastern Europe, also invests in medical companies.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, advanced less than 0.1 percent to 280.77. Local funds raised a net 310 million shekels in the week ended Dec. 27, 32 percent less than in the previous week, Meitav Investment House Ltd. reported today. Corporate-bond funds pulled in 214 million shekels compared with 107 million shekels a week earlier.

The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government debt of similar maturity, fell four basis points to 206, implying an average annual inflation rate of 2.06 percent.

The shekel was little changed at 3.7305 a dollar on Dec. 28. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, declined less than one basis point to 1.65 percent on Dec. 28.

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