2010 was supposed to be the year when public offerings finally returned to the Tel Aviv Stock Exchange after a two year drought. Meanwhile plans are one thing but reality is another. Is this a temporary cooling down due to negative sentiment in the market, or is the market still not ripe for public offerings?
The start of 2010 showed signs of a thaw. During January NIS 2 billion was raised with NIS 1.6 billion from bonds and NIS 420 million from shares. But February has shown signs of weakness. Since the start of the month, only NIS 500,000 has been raised NIS 410,000 in nods and just NIS 90,000 in shares. At the same time, Bank Leumi (TASE:LUMI) was able to raise NIS 2 billion last week through capital notes.
The situation on the corporate bond market seems reasonable but the stock market looks far worse. Two public offerings last week by two major groups in the economy Dor Alon Energy in Israel (1988) Ltd. (TASE:DRAL) and IDB Holding Corp. (TASE:IDBH) were forced to fall back on underwriters' commitments due to low demand, and in the case Alon Gas Exploration LP, the underwriters bought almost all the shares.
During 2009, whatever IDB offered was a success. Through various holding companies, IDB managed to raise the impressive sum of NIS 6 billion. Even so it was far easier to raise capital through bonds than shares.
Last week, IDB tried at short notice to raise NIS 75 million but demand for the institutional tender very week and the company could only raise NIS 60 million of which NIS 25 million was bought by the underwriters Clal Underwriters Ltd., Leumi Underwriters Ltd., Leader Underwriters Ltd., and Excellence Nessuah.
In the wake of that poor demand and negative tendencies in the market, IDB decided to improve the conditions offered to investors and lower the investment package by 10%. The public tender on the issue took place today and all indications are that it will yield better results than the institutional tender.
However, the results of IDB's offering were considered a success compared with the offering of Dor Alon, part of David Wiessman's Alon Group, one of the largest holding company's in the economy. Alon's offering hit a new low that has not been seen for a long time in the capital market with only NIS 280,000 raised for Alon Gas Exploration LP out of a total offering of NIS 30.8 million just 0.9%.
Despite the weakness shown by these two offerings, underwriters are still talking optimistically, claiming that the failures of IDB and Alon were isolated problems, and do not represent future trends.
One underwriter said, "The lack of success in these two instances took place because of incorrect pricing. Alon knew that their pricing was problematic.'
The main characteristic of recent offerings on the capital market has been the almost complete absence of institutional bodies. According to recent figures published by the Ministry of Finance, the level of participation of large institutions in recent offerings has fallen to just 13%, while their overall participation in the capital market is 66%. Most of the demand for offerings comes from the public, mainly from mutual funds and the institutions are not enthusiastic about the average price in offerings, and are looking for more attractive investments.
One institutional investor said, "The bond market is not cheap and the smart players are not going into it. But while market trends are positive, bond offerings will continue."
Harel's investment division director Amir Hessel said yesterday that it is the public buying most of the bond offerings today. He said, "If I thought that these offerings were interesting I would go for them. We are looking for better alternatives."
In general it is possible to say that institutional investors are currently sitting on the fence. They are not going for shares, but on the other hand, they are not significantly reducing their position. We have evidence that global markets are seeing substantial profit taking recently while the Israeli market is relatively stable.
The Tel Aviv 25 Index has remained virtually unchanged over the past week, while worldwide there were sharp falls. European markets fell an average of 5% and the US S&P 500 Index was down 3%.
On the other hand, exposure by Israeli institutional investors is not low, and the level of prices is relatively inexpensive. Therefore, institutions in Israel prefer to preserve the status quo, and are not enthusiastic about participating in offerings.
There are a few more share offerings in the pipeline. The most notable is David Azrieli's real estate company Canit Investments Management and Finance Ltd. An additional public offering about to take place is Kardan NV (TASE: KRNV;AEX:KARD) subsidiary Kardan Real Estate Ltd. and Elco Holdings Ltd. (TASE:ELCO) subsidiary Electra Consumer Products Israel Ltd.
These companies are certainly concerned at the turn the market has taken this month. It remains to be seen whether we are talking about a temporary chill or if the market is not yet ready to digest public offerings.
Published by Globes [online], Israel business news - www.globes-online.com - on February 9, 2010
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