Israel quietly raises more debt overseas

Victor Bahar  / Photo: Inbal Marmari

The Ministry of Finance is no longer announcing each new bond that is raised abroad with great fanfare.

Israel's Ministry of Finance has lowered its profile in recent weeks on its debt raising activities overseas although operations have actually moved up a gear. The State of Israel has estimated financing requirements in 2020 of NIS 250 billion, at least double the regular amount of the State's financial needs in recent years including servicing the deficit and recycling debt that is set for repayment. The Covid-19 pandemic has pushed Israel into a double-digit budgetary deficit, which will reach an estimated 12%-13% of GDP, or more than NIS 150 billion.

Only this week, for example, the State raised €250 million over six and a half years at 1.5% interest. Last week the State raised two bonds. The first for €950 million over two years at zero interest and the second for ¥16 billion at 0.315% interest, while on July 15 the State has raised two other bonds €500 million over two years at zero interest and €350 million over 49 years at 2% interest annually.

In a regular year Israel raises foreign currency debt just once during January, which is disclosed to the media in a detailed press release. At the beginning of the pandemic crisis, bonds were raised and announced openly including the State of Israel's first-ever 100-year bond at annual interest of 4.5%. The Minister of Finance and Accountant General did not miss an opportunity to stress that these bonds were a vote of confidence by investors in the State of Israel and its financial stability.

But in recent weeks, the raising of funds has been conducted far from the public eye and only market traders who have access to information systems like those of Bloomberg have been able to track activities. The absence of media exposure raises concerns that the public is not aware of the scale of the interest it will be required to repay in years to come.

According to Bank Hapoalim (TASE: POLI) chief economist Victor Bahar, the debt raising activities aborad are aimed at somewhat lowering the pressure on the local bond market. Raising dent abroad is more expensive for the State because of the cost of converting shekels to foreign currency but it serves different purposes.

He said, "Through raising debt abroad the State lowers the burden on the domestic market. And it is more effective because there is a segmentation or separation between the markets."

The fact that the debt is raised 'under the radar' allows the State to reduce the level of participation by Israeli investors who tend to buy the debt on the secondary market."

Bahar added, "From the State perspective, if Israeli investors will buy less foreign currency debt, that will release and increase demand for government debt on the domestic market. If you raise money abroad without too much fanfare, it works better."

The Ministry of Finance told "Globes," that there are ongoing routine financing activities. "The Accountant General is using a range of instruments to finance the deficit in 2020, which as is known is expected to widen due to the coronavirus crisis."

Published by Globes, Israel business news - en.globes.co.il - on July 30, 2020 © Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Victor Bahar  / Photo: Inbal Marmari
Victor Bahar / Photo: Inbal Marmari
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