March 3 (Bloomberg) -- IDB Development Corp.’s 2025 bonds fell, pushing the yield to the highest in almost six weeks, after the Israeli company’s bondholders voted in favor of taking action on debt settlement plans. Government bonds rose.
The yield on IDB’s 987.7 million shekels of 4.95 percent notes due December 2025 increased 10 basis points, or 0.10 percentage point, to 13.98 percent, the highest since Jan. 21, at the close in Tel Aviv. The yield on the 4.25 percent benchmark government bonds due in 2023 fell three basis points to 3.95 percent.
IDB Development bondholders authorized their joint representative to act on debt restructuring and to take legal steps as necessary as the company’s parent IDB Holding Corp. strives to avoid default. Standard & Poor’s Maalot in January cut IDB Development’s rating to ilB from ilBB, saying it may fall 1 billion shekels ($269 million) short of cash to cover liabilities in 2014.
“IDB Development bondholders are starting to put pressure on the company and the expectation is that they will join forces with the holders of the parent company to find an overall restructuring plan,” said Adar Etzioni, head of research at Migdal Capital Markets Ltd., said by phone from Tel Aviv. “This will still mean some form of hair-cut for bondholders.”
IDB Development said today it is considering merger opportunities for its IDB Tourism unit. 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 company reiterates that it has the resources to meet all of its commitments and hopes the representative will use its authority it received by bondholders responsibly,” IDB said in an e-mailed statement today.
IDB Holding’s controlling shareholder Nochi Dankner is seeking funds to avoid default on 2 billion shekels of debt. The Israeli tycoon last year arranged an equity investment of as much as $100 million from Argentine businessman Eduardo Elsztain and sold an insurance company to a unit of Warren Buffett’s Berkshire Hathaway Inc. for $221 million.
The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, rose 0.1 percent to 284.04. Israeli funds raised a net 2.44 billion shekels in February, Meitav Investment House Ltd. said today. Corporate-bond funds pulled in 1.82 billion shekels compared with 1.92 billion shekels a month earlier, it said.
Average annual inflation expectations today increased one basis point to 225, 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 shekel depreciated 0.2 percent to 3.7225 a dollar on March 1. The currency fell 0.1 percent in February, according to data by Bloomberg. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, declined one basis point to 1.59 percent the same day.
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