Market Report / IDB Group Bonds Plunge 9% on TASE

Investors are uneasy about the quality of the company's debt.

Tel Aviv stocks took a pummeling Sunday as shares and corporate bonds of the gigantic IDB group fell hard, dragging down the indexes. The downward trend on the Tel Aviv Stock Exchange also echoed the steep dips on Wall Street Friday, in response to disappointing employment numbers in the United States. The gathering clouds of worldwide economic uncertainty and decelerating growth are expected to hover over trading floors through the week. Also this week, Israeli companies, whether they are dual-listed or on the board at Ahad Ha'am Street only, will continue to report on their financial results.

The benchmark TA-25 index and the broader TA-100 index each fell 1.8%, to 1,148 points and 1,049 points, respectively. The Banks-5 index shed 2.2%, while the Real Estate-15 index softened by 1.5%. Total turnover was lower than low, at just NIS 575 million.

Nochi Dankner
Michal Fattal

Dual-listed New York and Tel Aviv shares closed arbitrage gaps with Wall Street on Sunday, pulling down local indexes. Teva Pharmaceuticals sanks 2.6%, and the Blue Tech-50 index contracted by 2.4%.

Shares of IDB Holding Corporation, the company at the top of Israel's biggest pyramidal business conglomerate, tumbled 6.5%.

But the real pain was in the company's bonds, all of which are now deep into junk territory. Have investors simply decided that IDB, the biggest holdings group in Israel, will be defaulting? Are they giving up on the company? That's a probable yes, says Yaniv Pagot, chief strategist at the Ayalon investments group. "They're cleaning up and getting rid of the securities at any price," he said on Sunday. "There is no question that investor faith in the quality of the group's debt has become badly dented. In fact there aren't many cases in history of companies that rebounded from yields of 25% to fully honoring their debt."

IDB Holding C3 series bonds dived by 9%, a move that lifted yields on the paper to nearly 34.8%. That's the highest level yields the group, which is controlled by Nochi Dankner, have ever reached. It attests to a growing sense of disquiet among bond investors as to the quality of the IDB group's debt.

IDB Holding B4 series bonds fell by an almost-as-startling 8.4%, bringing their decline over the period of a week to 22%.

One key reason for the tumble in IDB Holding stock and paper is the Swiss bank, Credit Suisse. Through group company Koor, the IDB group owns about 3% of Credit Suisse's stock, which has been weak of late.

Other IDB group holding companies were not spared either. IDB Development Corporation B4 bonds lost 3.8% on Sunday, which sent yields on the bonds to 17.3%.

Koor is controlled by group company Discount Investment Corporation, whose B4 bonds lost 1.9%, bringing their yield to 6.2%.

The Tel-Bond indexes fell by around 0.5% on Sunday.

Meanwhile, Bank Mizrahi-Tefahot chief strategist Ronen Menahem sounded a reassuring note on Sunday with regard to fears of a recession in the United States. "The tendency to be frightened by any rise in unemployment statistics is unwarranted. The new jobless numbers are not encouraging, but you can't put the cart before the horse," Menahem explained, adding, "We believe the numbers aren't bad enough to justify the Federal Reserve carrying out a third round of quantitative easing, commonly known as QE3, or a new package of fiscal incentives."

Menahem's remarks echoed ones made Thursday by a trio of Federal Reserve Bank officials in Santa Barbara, California. San Francisco Fed President John Williams, Atlanta Fed President Dennis Lockhart and Philadelphia Fed President Charles Plosser, speaking with what Reuters dubbed "unaccustomed unity," summarily rejected further easing unless the U.S. economy takes a turn for the worse.

Williams told reporters the U.S. jobless rate would need to be stuck at above 8%, "not just for a few months" to require QE3. On Friday the U.S. Labor Department released figures showing the rate dropped slightly in April, to 8.1%.


With reporting from Reuters