Download Issuing Bonds In Israel September 2014

Raising Debt In Israel
Wellspring Capital
From Thought to Execution
September 2014
The Opportunity - Raising Debt In Israel
High liquidity of the local investors and a strong preference for bonds
Solid demand in large scales for unsecured rated bonds and a shortage
of local issuers
Rated unsecured corporate bonds are traded in a relatively low spread
from government bonds
Israeli market is accessible for relatively small companies enabling
issuing bonds in an amount of ~ US$40 million and more
Strong macro economics
High perception for real estate in the US
Advantages of Issuing Bonds In Israel
• The local debt market interest rates are attractive for the relevant peer group, compared
to the private alternative in the US, enabling raising subordinated debt in low interest
rates.
• Bond’s terms and structure in Israel are similar to a Mezzanine loan with lower interest
rate.
• The issuing proceeds can be used for refinance other expensive debt or for new
investments (e.g. buying out existing partners or investing in new assets) under the deed
of trust terms and conditions.
• The Israeli market is considered as accommodating, especially with regards to the debt
maturity and with relation to unsecured debt.
• The issuance of the first bond series in Israel creates a platform which enables companies
to issue new debt or enlarge the current series in the framework of a few days.
• The bonds will be issued under a Limited Liability Company, a legal entity which has no
recourse to shareholders in any default events.
Recommended Criteria For Issuing Bonds
Issuer Size
Equity of over US$50m – depending on the company’s operations
Operation
Strong preference for real estate companies with income producing assets in prime
locations
Locations
The Israeli market has a high perception for real estate in the US
Relevant
Ratio’s for
the Rating
Process
• Debt to (1) NOI; (2) FFO; or (3) EBITDA
• EBITDA to Interest expenses
• Debt to (Debt + Equity)
Issuance
US$50m and more
Rating
From BBB+ rating – the higher the rating the lower the interest rate
Interest Rate Based on the company’s assets portfolio and the assumed rating
Listing in Israel
Average debt raising process should take ~12-16 weeks in accordance with
the following milestones:
•
•
•
•
•
•
•
Approaching one of the local rating companies for rating the issued bonds
Prepare an IFRS based financial reports
Legal structure preparation
Writing and filing an Israeli prospectus
Conducting a comprehensive road show to local investors
Issuing marketing documents to local investors
Conducting negotiations with institutional investors regarding legal documents and
debt terms
• Conducting a preliminary tender offer for institutional investors
• Conducting a public tender
The Legal Structure Preparation
• In order to issue bonds in Israel,
the following legal preperation
should be executed:
• Incorporation of a B.V.I. Limited
Liability Company owned by
Individual/individuals* –New Co.
(B.V.I.)
• Cherry Picking of the new assets
which will be transferred to the
new company
• After the completion of the bond
offering and in the same time, the
Individual/individuals* will
transfer his/their direct or
indirect beneficial ownership
interests in the real estate in New
York to New Co. (B.V.I.)
Regulation Applying To Foreign Bonds Issuers
See below some of the provisions of law applicable to foreign entities issuing bonds
in Israel:
• Appointment of (1) external directors; (2) an audit committee; (3) an
independent director; and (4) an internal auditor.
• Reporting: (1) publishing quarterly and annual IFRS based financial statements;
(2) immediate reports regarding main events in the company's ongoing activity;
etc.
• Bonds issued by the Company shall be issued in accordance with a deed of trust
signed with a trustee. The deed of trust will include provisions regarding financial
ratios e.g. coverage ratios, leverage restrictions, commitment to maintain a rating
and other causes for immediate repayment etc. The trustee serves as the bond
holders' representative.
• The Issuing company should have a registered office or a representative office in
Israel, a local law firm and a local accountant firm.
An Overview Of The Israeli Market
Wellspring Capital
From Thought to Execution
September 2014
Strong Macro Economics
High Liquidity of the Local Institutional Investors
• Institutional investors manage over US$405bn (~NIS1,420bn) as of 2014 and are expected to reach US$571bn
(~NIS2,000bn) by 2020 ( ~57% of the total assets portfolio).
• Average monthly capital accumulation of US$3.2bn vs. new debt issuance of only US$830m creating an annual gap of
~US$38 bn -creating a need for new investments
Relatively low Government bonds Yield
• Low government bond yields –over the last few years, the spread between Israel government bond yields
and 10 year US bonds dropped dramatically from 3.29% to only 1.04%
• Local corporate bonds trade at a relatively low spreads over similar duration government bonds
Source: TASE
The Local Bonds Market
• Israel has a very efficient bonds market with high trading volumes
• Corporate bonds are traded in relatively low spreads over equivalent duration of government bonds
• Ranking arbitrage opportunity -taking advantage of the rating gaps between Israel and the company’s
local country rating, i.e the rating gap between Israel and the US is five notches, meaning that a BBB
company in the US will be rated as AAA in the local rating.
• Solid demands for long duration and unsecured bonds.
• The local market’s high liquidity crates an opportunity for companies to issue unsecured bonds. Over
70% of the traded bonds were issued without any collaterals.
Size Advantages
• Size advantages –a relatively small company in a foreign market (especially the North American markets) could be
considered a large company in Israel.
• Over 40% of Tel Aviv 100 index companies have a market cap of below US$0.5bn.
• The average market cap of companies traded in the Real Estate 15 index (which is composed by Israel’s leading real estate
companies) is ~ US$1bn.
Samples Of Real Estate Related Bonds
Wellspring Capital
Founded by Yaniv Bresler and Yaniv Lubinski. Both partners bring to the table vast experience in the Israeli
capital market and innovative thinking to solve your fund raising needs.
Yaniv Bresler
Yaniv Lubinski
MBA, LLB (ISR), over 14 years of
experience in Corporate Finance,
fund raising, M&A, IPO's, RTO's in
public and private companies from
variant sectors in Israel, North
America and Africa.
MBA, CPA (ISR), over 14 years of
experience in international financial
management, investments and fund
raising. Talent for creative thinking
and a multidisciplinary approach in
solving challenged situations.
• Contacts:
972-54-3332304
[email protected]
• Contacts:
972-54-3332301
[email protected]