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Azorim 2017 Bonds Soar to Record as Midroog Raises Debt Rating

Azorim-Investment Development & Construction Co. bonds rose to a record after Moody’s Midroog raised the Israeli real estate company’s debt rating. Government bonds were little changed.

The 5.5 percent notes due December 2017 rallied 1 percent to 122.71 agorot on the shekel, at the close in Tel Aviv. The securities rose 8 percent last month, matching the gain in October. The 4.25 percent benchmark government bonds maturing March 2023 yielded 4.09 percent. The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, gained for a second day, adding 0.1 percent to 282.24 today.

Moody’s Midroog lifted Azorim’s debt rating by one grade to A3 citing the company’s steps to increase its equity, liquidity and financial stability, according to a statement to the Tel Aviv bourse today. Azorim, which this year needs to make 300 million shekels ($82 million) in principal debt payments last week raised 120 million shekels via a rights offering and may sell as much as 250 million shekels in debt, according to the statement.

“Azorim has high debt payments this year and investors are seeing that the company is taking action to try and meet its commitments,” said Adar Etzioni, head of research at Migdal Capital Markets Ltd. in Tel Aviv. “The actions are also contributing to the drop in the yield on the company’s debt.”

The yield on Azorim’s 5.5 percent notes plunged 12 percentage points last year. Israeli funds raised a net 365 million shekels in the week ended Jan. 31, down from 425 million shekels the week earlier, according Meitav Investment House Ltd. today. Corporate-bond funds pulled in 322 million shekels compared with 296 million shekels a week earlier, it said.

Benchmark Rate

The Bank of Israel last week left its benchmark interest rate unchanged after a surprise cut in December brought the rate to the lowest in more than two years. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, increased two basis points to 1.76 percent on Feb. 1.

Annual inflation, which unexpectedly accelerated to 1.6 percent in December from 1.4 percent a month earlier, may average 2.22 percent in the next two years, according to the two-year break-even rate. The rate, which reflects the yield difference between the inflation-linked bonds and similar-maturity fixed-rate government debt, fell for the first time in four days, declining one basis point to 222. The government’s target range is between 1 percent and 3 percent.

The shekel on Feb. 1 gained 1 percent to 3.6729 a dollar, the highest since November 2011.

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