IDB Development Corp.’s 2018 bonds soared, pushing the yield down the most in more than two weeks, after the debt-strapped Israeli investment company sold its stake in Clal Industries Ltd. to boost funding.
The yield on IDB’s 2.12 billion shekels ($569 million) of 4.5 percent notes maturing June 2018 dropped 70 basis points, or 0.70 percentage point, the most since Feb. 17, to 19.28 percent, at the close in Tel Aviv. The yield on the 4.25 percent benchmark government bonds due in March 2023, was unchanged at 3.91 percent.
IDB Development said today it may post profit of 22 million shekels this month from the 223 million-shekel sale of its 10.6 percent stake in Clal Industries to an unnamed institutional investor. Its bondholders last week 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 a default.
“The deal provides some liquidity for the company as the holders particularly 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. “Still the sale is fairly small and will not do much to solve the debt problems at the parent company.”
Standard & Poor’s Maalot in January 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 short of cash to cover debt and costs in 2014, S&P said. The yield on IDB Development’s 2018 notes soared 13.7 percentage points last year.
IDB Holding shares fell 0.5 percent to 11.95 shekels. Clal Industries shares fell 3.9 percent, the most in a week, to 14.41 shekels after IDB Development sold its stake at 13.3 shekels per share. Trading was almost 28 times the three-month average daily volume.
The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, rose for a fourth day, advancing 0.1 percent to 285.24, the highest on record. The shekel strengthened for a second day, gaining 0.1 percent to 3.7273 to a dollar at 4:57 p.m.
The two-year break-even rate, the difference between yields on inflation-linked bonds and fixed-rate government notes of similar maturity, declined one basis points to 241 basis points, implying an average annual inflation rate of 2.41 percent over the period. The government’s target range is between 1 percent and 3 percent.
One-year interest-rate swaps, an indicator of investor expectations for rates over the period, one basis point to 1.60 percent. The Bank of Israel last month kept interest rates at 1.75 percent.