Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) found high demand for its notes offering in Tel Aviv, and raised the offering to NIS 1.9 billion in three series of notes, one shekel-denominated and two in US dollars. The notes are rated ilAA by S&P Maalot. The buyers of the notes are investment institutions in Israel. The offering was led by Discount Capital.
Defense company Elbit Systems has a market cap of $5.7 billion.
Elbit Systems CFO Joseph (Yossi) Gaspar said today, "We are delighted at the market's confidence in us, which is far above our expectations. We intended to raise NIS 1.2 billion. Demand was about three times that, and we settled on raising NIS 1.9 billion. The offering divides into three series. Series B is denominated in shekels. We raised NIS 1.5 billion in that series, after demand reached NIS 2.25 billion. The duration is 4.4, and the interest rate is 1.08%, which is 0.66% above the equivalent government bond, an excellent interest rate. Series C is denominated in dollars, at 2.12% interest, 1.12% above the government bond, with a duration of 4.3. Series D is also dollar-linked, with a duration of 6.7. We received demand of NIS 765 million and took just NIS 200 million, at 2.67%, 0.5% above the equivalent government bond, which is exceptionally good. This constitutes a message from the notes' buyers. You don’t normally see terms like that."
Gaspar explains the low rates in the notes tenders by confidence on investors' part in Elbit Systems for the long term, on the basis of its past performance. "What's important here is that we're talking about the long term, not a loan for three to four years. The confidence stems from what we have done in the past ten to twenty years - the company's development, growth, expansion into global markets, the need for our products, the advanced technologies - investors say to themselves that Elbit is here for the long run and will continue to be managed superbly going forward. This confidence is an extraordinary message to the company. I don’t think that there are many entities able to raise capital on terms like these," Gaspar said.
Why did you decide to raise capital in Tel Aviv?
"Because the conditions here for raising capital are good, both from the point of view of interest rates and from the point of view of the expeditiousness of the capital raising process, and after all we live here and manage the company from here, so it makes sense to raise capital here.
"Conditions are excellent just now, and what they say will happen as a result of the significant amount of money that the government is injecting into the economy is that this will eventually find expression in a degree of inflation, which will have consequences for interest rates. In other words, we are perhaps now at the bottom, and it's worth exploiting that to strengthen the balance sheet."
What's the money for?
"As I told the underwriters and investors, this is a financial move that supports the company's long-term strategy. This is composed of a business strategy of investment in advanced technologies and expanding our markets - chiefly in the US and Europe - which of course, looking to the long term, will build Elbit's business.
"In addition, we are also investing in operational improvements, modern production lines, a unified ERP system for the entire company which should improve working capital and lead to holding lower stocks, the bottom line being an improvement in the company's profitability. In other words, there are two main vectors here: technological-marketing, which requires investment; and operational - to make the company more efficient and bring about better levels of profitability. A third vector is continuing our acquisitions policy. In the past twenty years, Elbit's growth has been a combination of organic and acquisitions, about 50-50, and we plan to continue that way, in order to broaden our product offering and gain better access to the markets."
Published by Globes, Israel business news - en.globes.co.il - on July 6, 2021
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