IDB Holding 2020 Bonds Jump After Elsztain Investors Get Control

IDB Holding Corp.’s bonds and shares rallied after a Tel Aviv court approved a debt deal that investors expect will lead to cost cutting at its operating companies, improving its ability to repay obligations.

The yield on the company’s 1.07 billion shekels ($306 million) of 5.1 percent bonds due in December 2020 fell 189 basis points, or 1.89 percentage point, to 29.11 percent, the lowest since May 2012, at the close in Tel Aviv. Shares in the telecommunications-to-retail company soared 25 percent to 3 shekels as the trading was more than 23 times the three-month daily average volume. The stock declined 77 percent last year.

A group led by Argentine businessman Eduardo Elsztain was yesterday awarded control of the company 16 months after Chairman Nochi Dankner told bondholders he was holding talks to bring in new investors. The ruling cleared the way for the consortium to take ownership of the company and restructure 2 billion shekels of debt with injections totaling about 1.53 billion shekels.

“Yesterday’s decision finally removed the question of ownership,” Avihay Hermon, a trader at Israel Discount Bank Ltd. in Tel Aviv, said by phone today. “The new owners are determined to increase value to holders by cutting costs and improving debt repayment ability.”

IDB issued a “going concern warning” on Nov. 29 as its third-quarter loss widened to 380 million shekels from 17 million shekels a year earlier. Costs related to the debt settlement since September 2012 were 32 million shekels, according to the company’s quarterly earnings report.

The Elsztain group’s plan includes a cash injection of 876 million shekels, as well as 650 million shekels deposited earlier into an escrow account by Neuss, Germany-based Extra Holding GmbH.

Extra’s Moti Ben-Moshe said last month the new investors will implement a growth strategy based on competition in IDB’s subsidiaries that will create value for bondholders, shareholders, employees, and customers.

Israeli prosecutors informed Dankner they’re considering indicting him on securities fraud charges related to share issuance by IDB during February 2012, according to an e-mailed statement today.

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