Clal Insurance Won't Pay Dividends Any More, Says IDB

Cutoff could impair IDB's own ability to service its debt.

Clal Insurance won't be disbursing dividends any more, its parent company IDB Development announced Wednesday morning. The announcement sent Clal Insurance shares down on the Tel Aviv Stock Exchange.

The decree will not however affect dividends Clal Insurance might pay following the sale of the U.S. reinsurance company Guard, which Warren Buffett's company Berkshire Hathaway agreed to buy for $221 million.

Also on Wednesday, S&P Maalot downgraded Clal Insurance from A to BBB+, driven mainly by the deteriorating financial condition of the parent group, IDB.

The company at the top of the IDB business group is IDB Holding, which published a going-concern warning in its last financial statement. Also this week, holders IDB Holding's B2 bonds (which aren't listed for trade) elected new representation to negotiate with the company.

The general public is invested in the IDB group through institutional investors. Indeed, a host of institutionals own IDB Holding B2 paper, including the Makefet pension fund, the Psagot brokerage, the Migdal insurance company and the Harel insurance group.

Currently IDB Holding owes bondholders NIS 1.7 billion, and owes the banks NIS 300 million more. The company has something over NIS 200 million in cash, which will suffice to meet its liabilities through May 2013. But to meet its commitments after that through year-end 2013, it will need NIS 375 million more in liquid assets. The less dividends it gets from group companies, the harder it will be to meet its liabilities.

In afternoon trading on the Tel Aviv Stock Exchange on Wednesday, IDB Holding securities traded with little change – its shares were up 1.3%. Its B3 series bonds were down 0.19% and its B5 bonds were down 1.4%. But its B4 bonds were up 0.24%.