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IDB Development Yield Soars Most in Five Months on Debt Talks

IDB Development Corp.’s 2018 bonds dropped, pushing the yield up the most in almost five months, after bondholders set a meeting to discuss the possibility of a debt settlement proposal. Government bonds were little changed.

The yield on IDB’s 4.5 percent notes maturing June 2018 jumped 248 basis points, or 2.48 percentage points, the most since Sept. 20, to 21.62 percent, at the close in Tel Aviv. The yield on the 4.25 percent benchmark government bonds due in 2023, which was unchanged at 4.07 percent, fell two basis points this week.

IDB bondholders set a meeting for Feb. 14 to discuss the possibility of a debt settlement proposal after Standard & Poor’s Maalot last month cut the company’s rating by three grades to ilB, five levels below investment grade, citing “weak” funding and unsustainable high leverage. The company may fall 1 billion shekels ($271 million) short of cash to cover debt and costs in 2014, S&P said. The yield on IDB Development’s notes soared 13.5 percentage points last year.

“Bondholders want to know how the company will be able to meet its commitments in particular the holders of its longer-term debt are concerned that there won’t be enough funds left to pay back debt,” said Raz Mor, a corporate debt analyst at DS Securities & Investments Ltd. in Tel Aviv. “The company has been struggling to sell assets raising the likelihood that a debt settlement may be near including a so-called haircut.”

In response, IDB Development said the meeting was unnecessary as the company has liquid resources to meet its payments until the first quarter of 2014 and has assets with an economic value to cover all of its commitments. The company last month approached Koor Industries Ltd. to start talks to sell a full or partial stake in Clal Insurance Enterprises Holdings Ltd. IDB owns 55 percent of the insurer and a direct 13 percent stake in Koor, according to data compiled by Bloomberg. S&P Maalot said last month that deal approval will “very challenging.”

Averting Default

The bondholders’ meeting comes as its parent company, IDB Holding Corp., has been in debt settlement talks and seeking funds to avoid defaulting on 2 billion shekels of debt. IDB Holding shares slipped 1.7 percent to 10.33 shekels, the lowest level since Jan. 20.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, rose 0.1 percent to 283.25 boosting the weekly gain to 0.5 percent, the biggest increase since the week ended Jan. 3.

Average annual inflation expectations fell seven basis points to 218, according to the two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government debt of similar maturity. The government’s target range is between 1 percent and 3 percent.

Israeli manufacturers today called on the central bank governor to intervene immediately to stabilize the shekel-dollar exchange rate. The shekel, which strengthened to to a 15-month high on Feb. 1, was little changed at 3.6886 a dollar at 4:37 p.m. in Tel Aviv.

One-year interest-rate swaps, an indicator of investor expectations for rates over the period, declined one basis point to 1.71 percent. The Bank of Israel last week left interest rates unchanged at 1.75 percent after a surprise cut in December brought the rate to the lowest in more than two years.

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