IDB Development Bonds Drop After Holders Meeting on Debt Plans

IDB Development Corp.’s 2025 bonds dropped, pushing the yield up for the first time in more than a week, after the Israeli company’s bondholders met to discuss the next steps on debt settlement plans. Government bonds rose.

The yield on IDB’s 4.95 percent notes maturing June 2025 added four basis points, or 0.04 percentage point, the first increase since Feb. 6, to 13.09 percent, at the close in Tel Aviv. The yield on the 4.25 percent benchmark government bonds due in 2023 fell two basis points to 4.09 percent, trimming this week’s gain to two basis points.

IDB Development debt holders met today partly to consider starting talks to restructure debt as the company’s parent IDB Holding Corp. strives to avoid default. Standard & Poor’s Maalot last month cut IDB Development’s rating, saying it may fall 1 billion shekels ($272 million) short of cash to cover liabilities in 2014. The company may sell as much as 20 percent of Clal Insurance Enterprises Holdings Ltd. for as much as 750 million shekels to a foreign fund, Calcalist reported today.

“There are a few parties who are trying to take over IDB Development’s good assets,” Haim Gavrieli, chief executive officer of IDB Holding Corp., said at the meeting in Tel Aviv today. “The needless aggressive actions by IDB Development trustees raise serious concern about hidden agendas that are not in the interest of the company.”

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. IDB Holding shares dropped for the first time in almost a week, retreating 1.3 percent to 10.50 shekels.

“York has acquired a critical mass of IDB debt and is only interested in a quick turnaround which may not be in the best interest of all bondholders,” Moshe Tal, a private bondholder of both IDB Holding and IDB Development, said on the sidelines of today’s meeting.

Stake Sale

IDB Holding’s controlling shareholder Nochi Dankner is seeking funds to avoid defaulting 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.

Today’s Calcalist report comes after IDB Development, which owns 55 percent of Clal Insurance, approached Koor Industries Ltd. for talks to sell a full or partial stake in the insurer. S&P Maalot said last month that deal approval will be “very challenging.” An IDB spokeswoman, who asked not to be identified due to company policy, declined to comment on today’s Calcalist report.

“IDB Development has liquid reserves to meet all of its commitments through the first quarter of 2014 and assets with an economic value to cover all of its commitments,” Gavrieli said at the meeting, which was attended by about 50 bondholders including York Capital’s Israeli representative Jeremy Blank. “The company is considering steps to strengthen its capital structure such as the attempt to sell IDB Development’s holding in Clal Insurance to Koor.”

Inflation Data

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, rose for the first time since Feb. 10, gaining 0.1 percent to 282.95.

Annual inflation may be unchanged at 1.6 percent in January when data is released tomorrow, according to the median estimate of 11 analysts compiled by Bloomberg. The rate unexpectedly accelerated in December.

Average annual inflation expectations today increased two basis points to 212, 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 was little changed at 3.6803 a dollar at 5 p.m. in Tel Aviv. The currency gained 0.8 percent this month, according to data by Bloomberg.

One-year interest-rate swaps, an indicator of investor expectations for rates over the period, declined three basis points to 1.71 percent.

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