The yield on IDB Holding Corp. (IDBH)’s 2020 bond soared to a record and the shares fell after its credit rating was cut and accountants questioned the viability of the owner of Israel’s biggest mobile-phone provider.
The yield on IDB’s 5.1 percent notes maturing in December 2020 jumped 170 basis points, or 1.7 percentage points, to 78.45 percent, at the 4:30 p.m. close in Tel Aviv, the highest level since the notes started trading in May 2007. The shares dropped 2.1 percent to 14.01 shekels, bringing the slump this year to 64 percent. Israel’s benchmark TA-25 index slipped 0.5 percent.
The second-quarter loss at IDB, whose chairman is Nochi Dankner, increased to 1.27 billion shekels ($316 million) from 883 million shekels in the year-earlier period, the company said Aug. 31. Standard & Poor’s Maalot that day lowered the holding company’s rating to CCC, citing a continued deterioration in liquidity levels and concern over debt repayment abilities over the coming year.
“Dankner is the latest in the so-called Israeli tycoons to have run into financial difficulties,” Richard Gussow, an analyst at DS Securities & Investments in Tel Aviv said today by phone. “He’ll have to reach a settlement with bondholders and sell off some of his assets, which could provide a much-needed lifeline to IDB.”
Israeli companies will struggle to issue new debt and roll over maturing liabilities to pay obligations coming due in 12 months, Moody’s Investors Service Inc. said in a report on May 8. More than 30 Israeli companies sought debt forgiveness since 2011 as refinancing costs rose and growth slowed, the Israel Securities Authority said in a July 1 report.
“The company does not have the ability at this point to recycle its debt in the capital markets or with banks and it hasn’t yet attained additional sources to repay its debt from June 2013 onwards,” IDB’s accountants BDO Ziv Haft and KPMG- Israel said in a so-called going-concern warning in the notes accompanying the quarterly report. “Significant doubts arise as to the continued existence of the company,” the accountants said.
IDB, which has stakes via a unit in Cellcom Israel Ltd. (CEL:US) and Shufersal Ltd. (SAE), the largest supermarket chain by market value according to data compiled by Bloomberg, has enough money to continue operations for “close to a year,” Dankner said in a letter to employees. The company will sell some assets, cut expenses and seek partners to get through the current “rough days,” Dankner, who owns IDB Holding via Ganden Holdings Ltd., said in the message that was circulated internally on Aug. 31 and made public yesterday by e-mail.
A unit of billionaire Warren Buffett’s Berkshire Hathaway Inc. (B:US) last month agreed to acquire a U.S. unit of IDB’s Clal Insurance Enterprise Holdings Ltd. (CLIS) for $221 million. IDB said Aug. 29 it is in talks with a potential investor.
Israeli Finance Minister Yuval Steinitz said today in a cabinet meeting that he foresees no “significant” damage to the public’s pension savings as a result of IDB Holding Corp.’s difficulties, even in a worst-case scenario, according to an e- mailed statement today.
IDB appointed Avital Bar-Dayan as head of investor relations and debt, according to an e-mailed statement today.
Discount Investment Corp. (DISI), a unit of IDB, said today its Ma’ariv Holdings Ltd. (MARV) will stop publishing a daily newspaper, with the exception of a printed weekend edition, and focus on its website. Discount Investment said Aug. 31 its second-quarter loss widened to 1.27 billion shekels from 703 million shekels a year ago.
The Tel-Bond 40 index of corporate bonds fell for a fourth day, declining less than 0.1 percent to 266.04.
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