Discount Investment Corp. (DISI)’s bond yield jumped to a record after the company said Moody’s Midroog may lower its debt rating and shares of its telecommunications affiliate plunged amid growing competition.
The yield on Discount Investment’s 5 percent shekel-denominated notes due April 2016 surged 130 basis points, or 1.30 percentage points, to 11.37 percent, at the 4:30 p.m. close in Tel Aviv. Shares of the Tel Aviv-based company slumped 20 percent to 11.50 shekels, the lowest since their listing in 1995. Cellcom Israel Ltd. (CEL), which is 47 percent-owned by Discount, dropped 9 percent to a record 34.11 shekels.
Moody’s Midroog is discussing lowering its debt rating, Discount said today, just two days after Standard & Poor’s Maalot said its outlook on the company’s debt was negative. S&P cut ratings on Discount’s parent companies IDB Holding Corp. (IDBH) and IDB Development Corp. that day to the lowest and third-lowest investment grades, respectively, citing “weak” funding levels.
“Negative sentiment around the investments of Discount is growing and the possible debt downgrade is adding to the fire,” said Erez Dam-Och, head of the trading desk at Tel Aviv-based Meitav Investment House Ltd. “Investors are concerned about debt repayment abilities because of the big cash needs at the company’s parent companies IDB Holding and IDB Development.”
Billionaire Nochi Dankner, who controls IDB Holding, said May 14 “there is a credit squeeze” and that “it’s true that it is not easy to recycle debt.” IDB said it will consider steps to boost funding at its units in coming months. The yield on IDB Holding’s 5.1 percent notes due December 2020 jumped 232 basis points to 34.08 percent, the highest on record.
Discount Investment, which owns stakes in manufacturing, retail and telecommunications businesses, has also been hurt by speculation Cellcom may be forced to reduce prices as competition grows. Cellcom represents about 22.9 percent of Discount’s investments, according to Dam-Och.
Golan Telecom Ltd. and Hot Telecommunication System Ltd. started offering wireless services on May 14, competing with packages offered by Cellcom, Partner Communications Co. (PTNR) and Bezeq Israeli Telecommunication Corp. (BEZQ)
Shares of Partner and Hot were down 7.3 percent and 7.8 percent, respectively.
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