Market report / Africa Israel shares, bonds sink as investors lose enthusiasm for debt deal

Tel Aviv stocks gained ground yesterday on moderate total turnover of NIS 1.5 billion. The talk of the day remained the debt arrangement taking shape at Africa Israel Investments, but it seems that the initial spurt of enthusiasm following the announcement of a draft agreement has waned. Yesterday the real estate company's stock sank 6.7% while its bonds fell by as much as 4%, after rising an average of 10% on Sunday. Africa Israel bonds are still trading at junk-yield levels of 15% to 54%, indicating that investors are not persuaded the company can make good on its liabilities.

The benchmark TA-25 index gained 0.6% to close at 1,006 points and the broader TA-100 index advanced by the same to close at 941 points. The Real Estate-15 index ended slightly above the flatline and the Banks-5 index ended slightly below it.

Around the world, the markets had been in the doghouse as last week rolled to a close. Sentiment may improve this week, not least because of the surprise Ford Motor Co sprang yesterday. The carmaker shocked the Street yesterday by reporting net profit of $997 million, or 29 cents per share, for the third quarter (compared with a net loss of $161 million in the same period of 2008). Wall Street had been confident that Ford would be in the red. Ford, the only large U.S. automaker to avoid bankruptcy in 2009, said cost-cutting, an earnings increase from its Ford Motor Credit Co arm and market-share gains supported the third-quarter results. Ford burned through $4.7 billion in cash in the first half of 2009, but reported $1.3 billion of positive cash flow in the third quarter, which chief financial officer Lewis Booth called "a huge deal."

Mazal tov, Ford. Over here, Israel Discount Bank sprang a surprise too by announcing that its controlling shareholders want to get rid of chairman Shlomo Zohar, who has been asked to step down by year-end. Zohar returned the favor with a surprise of his own, saying yesterday that no, he won't go until his contract runs out in 2010. Discount stock ended with a slight gain.

Bank Hapoalim also ended flat after the state comptroller clarified Sunday that he has declined to open an inquiry into Shari Arison's complaint about the Bank of Israel's conduct in ousting Hapoalim chairman Danny Dankner, whom she thereafter hired to chair Arison Holdings - through which she owns the controlling interest in Hapoalim.

Bank Leumi, which on the other hand has kept its chairman, Eitan Raff, lost 1.5%. Finance Minister Yuval Steinitz said the state has made a firm decision to sell its interests in Leumi and in Discount Bank.

Shares of The Israel Corporation sank 1.5% as the furor surrounding its proposals to rescue its shipping subsidiary Zim continue to make waves. May Clal Insurance's provident and mutual funds vote at the corporation's shareholders assembly, or may they not, on the groudns of "personal interest" in the outcome? The injection from Israel Corporation to Zim may depend on that question. Stay tuned.