IDB Holding Corp.’s 2020 bonds fell, lifting the yield to the highest in more than four months, after Bank Leumi Le-Israel Ltd. backed out of a debt arrangement with the company’s largest shareholder.
The yield on IDB’s 1.07 billion shekels ($295 million) of 5.1 percent bonds due Dec. 2020 jumped 646 basis points, or 6.46 percentage points, to 71.64 percent, the highest since Dec. 5, at the close in Tel Aviv. The shares dropped to the lowest on record.
The debt arrangement between Bank Leumi and businessman Nochi Dankner’s Ganden Holdings Ltd., which holds a 47.2 percent stake in debt-strapped IDB, is no longer relevant, on concern that an investment from Eduardo Elsztain won’t come through, the bank’s Chief Executive Officer Rakefet Russak-Aminoach said in an e-mailed statement. Elsztain, who last year bought 10 percent of Ganden for $25 million, hasn’t decided whether to boost that to $100 million.
“The bank’s cancellation clearly questions the likelihood that Elsztain will realize his investment option,” Avihay Hermon, a trader at Tel Aviv-based Israel Discount Bank Ltd., said by phone. “Without the investment it is difficult to see how IDB will be able to settle its debt arrangements with banks and bondholders.”
The agreement in which Elsztain will make “additional investments into Ganden is valid and effective,” Dankner, who is scheduled to travel to meet with the Argentine businessman this week, said yesterday in an e-mailed statement. Ganden this month agreed to extend until April 28 an option for Elsztain to buy more shares in the company as IDB Holding is embroiled in debt-settlement talks with bondholders.
Meanwhile, the Bank of Israel, which on April 17 said it would review the debt arrangements in response to media reports that Leumi would forgive 150 million shekels of Ganden’s debt, confirmed that the deal was still under review. IDB’s Dankner, who is seeking funds to meet payments on about 2.06 billion shekels of debt, also said yesterday he is “determined” to pay back debt and that a restructuring is necessary to strengthen IDB and help the company resume business.
The debt-ridden holding company in March proposed a debt arrangement to transfer 15 percent of its shares to bondholders, as well as a 500 million-shekel cash injection.
Separately bondholders at IDB Development Corp., which is owned by the holding company, today filed a request to a Tel Aviv court proposing a recovery plan for the company’s debt. The plan seeks to convert 55 percent of the company’s 3.8 billion shekels in debt into shares as well as issue one new bond series. The yield on IDB Development’s 2.5 percent bond maturing June 2018 jumped 205 basis points to 27.52 percent, the highest since Oct. 11.