IDB Development, controlled by Edward Elsztain, began a roadshow this week an offering of a new series of bonds - its first since July 2017. IDB Development is in a difficult financial position; its bonds from Series 9 and Series 14 are trading at junk bond yields of 28% and 17%, respectively. The company believes, however, that issuing a new bond series will succeed without any special difficulty.
The main reason is that the new bonds will be backed by fairly strong collateral in the form of a lien on 10% of the shares in Clal Insurance (and/or the proceeds from the sale of those shares) at a 133% value-to-lien ratio (the amount of debt to be raised is 33% less than the value of the security). Clal Insurance's current market cap is NIS 300 million, making 10% of its shares worth NIS 300 million.
If this market cap remains unchanged until the issue date, scheduled for the first week of November, the size of the current bond offering will be NIS 200 million. The money will help IDB Development fully redeem its two other bond series, 11 and 13, which total NIS 480 million and are approaching maturity.
IDB Development current directly holds 15.3% of the shares in Clal Insurance. According to the schedule set by the previous supervisor of the Capital Markets, Insurance, and Savings Authority, however, it will have to sell 5% of the shares by early January, and therefore cannot encumber the shares to be sold to secure another bond issue. IDB Development's board of directors decided to sell these shares in 2019, either for cash or Series 9 and Series 14 bonds, as was done in early September.
Half of the principal to be repaid within a year
The schedule for selling its shares in Clal Insurance requires IDB Development to sell a final 5% parcel in early May 2020. These shares will be attached in favor of the new Series 15, and it is therefore planned that half of the principal from this series will be repaid at the end of September 2020, while the other half will be repaid at the end of June 2022.
The current issue of debt is critical for repayment of IDB Development's debt to holders of Series 11 and Series 13 bonds. IDB Development's main alternative, which is less attractive for it, is the sale of its entire 15.3% stake in Clal Insurance now.
Published by Globes, Israel business news - en.globes.co.il - on October 24, 2019
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