Discount Investment Shares, Bonds Retreat on Repayment Concerns

Discount Investment Corp. shares and bonds plunged on concerns the holding company may struggle to repay debt after an initial public offering of a subsidiary was pulled.

The yield on Discount’s 2.8 billion shekels ($725 million) of 4.95 percent bonds due Dec. 2025 jumped 1.3 percentage point to 7.39 percent, the highest this year. Its shares slumped 24 percent to 9.50 shekels at the close in Tel Aviv, meaning they have dropped 62 percent this year. Shares of parent IDB Development Corp. declined 17 percent to 2.135 shekels.

Adama Agricultural Solutions Ltd., the world’s largest maker of generic agro-chemicals, postponed an initial public offering after failing to agree with investors on pricing. Discount, which owns 40 percent of Adama, and IDB were counting on a successful IPO to inject value into the company and refinance debt, Yaniv Pagot, chief strategist for Israel-based Ayalon Group Ltd. said today by phone.

“The company has enough cash to repay debt comfortably till 2016, but what will happen once that cash ends, from 2017 onwards?” Pagot said.

Discount had cash and cash equivalents of 1.86 billion shekels at the end of June, with net debt of 3.4 billion shekels, according to its second-quarter results.

Its parent IDB is owned by a group including Argentine businessman Eduardo Elsztain and Moti Ben-Moshe. Israeli businessman Nochi Dankner had to cede control of IDB earlier this year, after he failed to bring in investors for the company to repay debt.

Discount could have used a market valuation of Adama as collateral to refinance debt and sold shares in a secondary offering to raise additional funds, Pagot said.

The company said it would study the impact of the Adama IPO delay on its third-quarter financial results. It “has no further comment than the filing to the Tel Aviv bourse today,” Tal Rabina, a spokesman for Ben Moshe, said by phone today.

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