The blows landing on IDB Holding Corp. Ltd. (TASE:IDBH), controlled by chairman Nochi Dankner, including competition to its mobile carrier unit Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) and the plunge in the share price of Credit Suisse Group AG (NYSE: CS; SWX: CSGN; XETRA: CSGZ) have sent the share prices of the company and its holding company subsidiaries to new lows. Prices for the bonds of IDB Holding and subsidiary IDB Development Corporation, which total NIS 6 billion, have simultaneously slumped, sending the yields to junk bond status of up to 65%.
A question mark now hangs over the ability of IDB, once considering Israel's top conglomerate, to meet its commitments, and investment houses are divided on the matter.
IDB cannot service its debts
"The market price of IDB Development's assets cover the current debt, in terms of market price, but they cannot service the adjusted value of the bonds," Altshuler Shaham Ltd. co-CEO Gilad Altshuler told "Globes". "Under these circumstances, IDB Holding cannot service the debt, as reflected by the prices for its bonds. The market is pricing the bonds as if the company cannot repay its long-term debt."
Altshuler warned, "The disaster at IDB is more Cellcom than Credit Suisse. Both in terms of cash flow, which is not coming in, and in terms of lost value. Cellcom was a thriving cash cow, and the slaughter of this cow hurt. All the rest is unpleasant, but marginal."
IDB's stake in Credit Suisse, held through Discount Investment Corporation (TASE: DISI) subsidiary Koor Industries Ltd. (TASE:KOR), has also plummeted. Credit Suisse's share price is down 30% from its 12-month peak to CHF 18 on the Zurich Stock Exchange.
Altshuler says, "It has been forgotten that IDB made money on Credit Suisse, but when there were profits they were withdrawn as dividends, leaving nothing in the till."
As for Shufersal Ltd. (TASE:SAE), Israel's largest supermarket chain, Altshuler says that it was hurt by the social protest. In addition, the acquisition of the controlling interest in Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) by Eliahu Insurance Company Ltd. was priced at a low premium for insurance companies. Had Dankner sold Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), IDB would now be in much better shape, but the market is no longer pricing a deal with a high control premium.
"IDB needs a recovery in the prices of its assets, Cellcom, Credit Suisse, Shufersal, Clal Insurance, etc., and then it won't have to give a haircut. Market prices do not always reflect prices of a sale. For example, the sale of Makhteshim Agan Industries Ltd. was made at a much higher value than its market price," says Altshuler.
Altshuler says that IDB has enough cash to meet its bond payments in the short term, and that the company is trying to sell assets to repay its debts on time. "The question is whether it will succeed. The situation looks worse from one day to the next,, because the share prices are falling, especially for telcos."
No debt settlement at IDB
"Things have gotten out of hand. We're talking about the strongest conglomerate in the country, with companies, each of which is a leader in its field, and which make handsome profits," says Impact Portfolio Investment Management manager Tzahi Rudnik.
Rudnik believes that there will be no debt settlement at IDB. As for the plunge in the prices for its shares and bonds, he says, "It looks like a falling knife." As for the downgrade in IDB's bond rating by Standard & Poor's Maalot Ltd., he adds, "Maalot had no choice, but when you look at similar companies around the world with a BBB rating, they do not have yields of 70%, or even 20%. There is panicky hysteria here."
Panicky hysteria?
Rudnik: "To say that IDB cannot service its debt is harsh, although it cannot be ruled out entirely. Anything can happen nowadays and no scenario can be ruled out."
Published by Globes [online], Israel business news - www.globes-online.com - on May 17, 2012
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