Credit card company Leumi Card yesterday successfully completed a bond offering, the first by a local credit card company. Demand for the offering totaled NIS 2 billion from 60 different concerns. Given the strong demand, Leumi Card, managed by CEO Ron Fainaro, raised NIS 1.13 billion, after having originally planned to raise NIS 500-700 million. Interest on the bonds will be 2.19%. S&P Maalot rated the private bond offering AA minus. Leumi Partners and Leader Underwriters led it.
It is believed that most of the large investment institutions in the capital market took part in the offering, but the results show that Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) refrained from investing. Migdal's investment managers were interested in the issue, attended the roadshow, and as far as is known, made preparations for the deal. In the end, however, Migdal did not invest in the offering, apparently because CEO Doron Sapir vetoed it. Sources close to Migdal today asserted that no deal already approved by the investment committee for members' money had been stopped. At the same time, as far as is known, Sapir is more involved than his predecessors in the group's investment management. Migdal itself did not respond today to the report.
Up until six months ago, Sapir was CEO of ICC-Cal, Leumi Card's major competitor, with which he had a number of disputes. Sources close to Migdal said that Sapir's views were based on objective criteria derived from his profound knowledge of the credit card market and superior ability to analyze the risks stemming from it, especially what is liable to happen when the companies are detached from the banks.
S&P Maalot also addressed the risk when it gave the bonds an AA minus rating. For example, the rating report stated, "Credit card companies in Israel are exposed to additional risks, in comparison with the banking system, stemming from a business environment with growing competition and an absence of access to the Bank of Israel's lines of liquidity."
S&P Maalot also commented on the upcoming change of ownership in Leumi Card from Bank Leumi (TASE: LUMI) to Warburg Pincus, which acquired Leumi Card, with the company's leverage increasing as a result: "The company's ability to generate profits will be offset by a more aggressive dividend distribution policy under the new ownership."
Was Sapir's intervention in the investments committee's decision legitimate?
In general, it can be said that according to the regulatory concept, there are two investment committees: nostro (less of a problem) and a members' investments committee in the insurance company, which is an organ with two functions: supervision and management. As far as is known, if the CEO overrides a decision by this committee, that regulator would view that as problematic.
In any case, even without investment from Migdal, Leumi Card can be satisfied with the results of the offering, which is likely to open the door to additional offerings later. After Leumi Card is detached from ownership by Bank Leumi (and Isracard from Bank Hapoalim (TASE: POLI)), the credit card companies will need to diversify their sources of financing, for which they previously relied on the bank, by making more use of debt raising on the capital market.
"Globes" recently reported that the Ministry of Finance was planning to increase the permissible size of a bond issue by a non-banking credit card company from the current NIS 5 billion. After understandings on the matter were reached with the Bank of Israel, a bill sponsored by MK Roy Folkman (Kulanu) was proposed raising the limit to NIS 20 billion. The bill has passed the ministerial legislation committee, and passed its first reading in the Knesset by a large majority. It is now scheduled for consideration by the Knesset Finance Committee.
Published by Globes, Israel business news - en.globes.co.il - on October 24, 2018
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