Kardan 2016 Yield Drops to 3-Week Low on China Asset Sale Talks

Kardan NV’s 2016 bonds rose, sending the yield down the most in almost three weeks, as the Chinese unit of the debt-ridden real estate investor entered talks to sell a shopping center stake. Government bonds rose.

The yield on Kardan’s 1.19 billion shekels ($324 million) of 4.45 percent notes maturing February 2016 plunged 117 basis points, or 1.17 percentage points, the biggest drop since Feb. 3, to 11.01 percent, at the close in Tel Aviv. The government’s 4.25 percent benchmark bonds due in 2023 yielded 3.99 percent, down three basis points. The rate fell 10 basis points this week, matching the decline of the week ended Nov. 29.

Kardan’s Land China unit signed a letter of intent with an international fund for the sale of a 50 percent stake in the Europark Dalian mall for 710 million yuan ($114 million). The company, which is struggling to meet debt commitments for 2014, last month reached an understanding with bondholders on concessions including its dividend distribution and that 50 percent of asset-sale proceeds will be used for debt repayments.

“Kardan has a liquidity problem,” Noam Pincu, an analyst at Psagot Investment House Ltd., said today by phone. “If the sale goes through it will help improve Kardan’s ability to repay debt in 2014 and will win them time to find more financing.”

Cash Available

Kardan, which owes 35 million euros ($46 million) to debt holders this year and 74 million euros in 2014, had 50 million euros in its coffers at the end of September, according to a November company presentation. The yield on Kardan’s 2016 bond soared 10.4 percentage points last year and reached a record 23.8 percent on July 5. The yield on the company’s 1.33 billion shekels of 4.9 percent notes due February 2020 fell 75 basis points, the most since Feb. 6, to 10.53 percent.

Moody’s Midroog today lowered Tel Aviv-based Elbit Imaging Ltd.’s debt rating to Ca from B2. Standard & Poor’s Maalot yesterday cut the company to Default from ilCC as the real estate investor failed to make payments to bondholders due Feb. 20. The yield on Elbit Imaging’s 751 million shekels of 5 percent bonds due April 2020 soared 125 basis points, the most since Feb. 12, to 50.99 percent.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, rose for a fourth day, adding 0.1 percent to a record 283.77.

The Bank of Israel will probably leave the benchmark interest rate unchanged at 1.75 percent on Feb. 25 after four cuts in 2012, according to 10 of 18 economists surveyed by Bloomberg. The other eight forecast a quarter-point reduction in the rate. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, fell for a sixth day, declining three basis points to 1.60 percent.

Israel’s average annual inflation expectations rose five basis points to 2.18 percent, 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 to 3 percent.

The shekel weakened 0.2 percent to 3.6783 a dollar at 4:40 p.m. in Tel Aviv. The currency gained 0.8 percent this month, the second-best performer of 31 major currencies according to data compiled by Bloomberg.

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