Competitive tender saves Israel $35m in bond offering

This weeks $1.6 billion bond issue in the US attracted major institutional investors from the US, Europe and Japan.

Israels Ministry of Finance saved about $35 million by managing this weeks $1.6 billion bond offering in the US through a competitive tender.

Under such a tender, investors specify the yield they are willing to accept, and the bonds are awarded to the most attractive offers. Managing the offering this way cut 0.2 percentage points from the cost of the offering, worth about $35 million at present value.

The bonds were rated AAA, the highest rating available, because they were backed by US loan guarantees. Standard & Poors and Fitch Ratings usually rate Israels debt A- with a negative outlook, while Moodys Investors Service rates the country A2 with a stable outlook.

The bonds issued this week were purchased by some of the worlds largest institutions, including investors outside the US, most probably from Europe and Japan.

Deputy Accountant General Eldad Fresher told Globes that the bond issue was a great success and had earned acclaim from international market players as well as senior figures in the US Administration.

Fresher noted that for the first time, the bond offering was run via a special IT operation using smart identity cards and advanced technologies, managed at three geographical locations: New York, where the offering was centered, as well as Washington and Jerusalem.

We used an Israeli-developed system, and it worked flawlessly. Investors that wanted to enter were in. Anyone who needed to stay out, was out. Keeping the network and information secure reduced the exposure of bidders, enabling them to make the most aggressive offers from their perspective. Any bidder was exposed to the market for only a couple of seconds, Fresher said.

Fresher said representatives of the US Agency for International Development (US AID) supervised the bond issue online from Washington, and approved the offering as it took place. At the same time, a computer team from Israels Ministry of Finance in Jerusalem managed the bond issue on the technical front, supervising network and information security.

Fresher estimated that Israel would exercise in full the first tranche of US loan guarantees, totaling $3 billion, by the end of 2003. He said the other $1.4 billion from the first tranche would be raised during the fourth quarter of this year, with the precise date to be determined on the basis of US interest rate conditions and Israels liquidity needs.

Published by Globes [online] - - on 18 September, 2003

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