IDB Development Corp.’s 2018 bonds dropped the most in four months after Standard & Poor’s Maalot lowered the Israeli investment company’s credit rating on concern it may struggle to pay debt. Government bonds fell.
The 4.5 percent notes maturing June 2018 slumped 3.3 percent, sending the yield down 1.81 percentage points, set for the biggest drop since Sept. 24, to 19.81 percent as of 12:26 p.m. in Tel Aviv. The 4.25 percent benchmark government bonds due 2023 yielded 4.05 percent, up two basis points, or 0.02 percentage point, taking the three-day gain to nine basis points.
S&P cut IDB Development’s rating by three grades to ilB, five levels below investment grade, citing “weak” funding and unsustainable high leverage, according to a Jan. 17 statement to the Tel Aviv bourse. The company may fall 1 billion shekels ($268 million) short of cash to cover debt and costs in 2014, S&P said. The yield on IDB Development’s notes soared 13.5 percentage points last year.
“IDB maybe facing difficulties in getting the approvals necessary to sell assets as it seeks debt financing sources,” said Gil Chen, a bond trader at I.B.I.-Israel Brokerage & Investments Ltd. in Tel Aviv. “The negative environment is pushing down its bonds.”
IDB Development approached Koor Industries Ltd. (KOR) to start talks to sell a full or partial stake in Clal Insurance Enterprises Holdings Ltd. (CLIS), Tel Aviv-based Koor said Jan. 17. IDB Development owns 55 percent of the insurer and a direct 13 percent stake in Koor, according to data compiled by Bloomberg.
IDB Development’s downgrade comes as its parent company, IDB Holding Corp. (IDBH), seeks funds to avoid defaulting on 2 billion shekels of debt after bondholders on Jan. 7 rejected a settlement proposal. IDB Holding shares slumped 3.5 percent, headed for the biggest drop since Dec. 27.
“The intention of IDB to sell a stake in Clal is positive but the approval process will be very challenging and we see a risk to the execution of a deal,” S&P Maalot said.
The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, declined for the first time in four days, falling 0.1 percent to 281.99.
The two-year break-even rate, the yield difference between the inflation-linked bonds and fixed-rate government debt of similar maturity, rose four basis points to 214, implying an average annual inflation rate of 2.14 percent.
The shekel weakened 0.3 percent to 3.7288 a dollar on Jan. 18, trimming its monthly gain to 0.1 percent, according to data compiled by Bloomberg. One-year interest-rate swaps, an indicator of investor expectations for rates over the period, declined one basis point to 1.72 percent that day.
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