The bond market is still booming, and Rafael Advanced Defense Systems Ltd. is conducting a private bond issue of NIS 500 million-1 billion, sources inform "Globes." Midroog rating agency economists are expected to rate the bonds AAA, the same rating Rafael was given for its previous bond issues.
The issue, which as far as is know is being led by Discount Underwriting and Issuing, is slated to take place in the coming weeks. Rafael currently has one bond series in circulation -Series B of index-linked bonds, issued 11 years ago, which bears 4.7% nominal interest. Full repayment of the bonds is expected by the end of 2018.
The current issue is likely to reflect the sharp downturn in yields on government and corporate bonds over the past three years (the yield on five-year government shekel bonds is only 1.5%, and the yield on five-year government index-linked bonds is 0.2%).
Rafael develops advanced weapons, with an emphasis on missiles. Among other things, the company developed the Iron Dome system for defense against short-range missiles and the Trophy system for active defense of tanks and armored military vehicles. A government company, Rafael posted a NIS 239 million profit in the first half of 2016, up 42% compared with the corresponding period in 2015. Rafael's CEO is Yoav Har-Even, and Uzi Landau was recently appointed company chairman.
In a 2016 review of the company by Midroog, the analysts wrote, "The company enjoys a high probability of state support, if necessary, which is a positive factor in the rating. Despite its orientation to the domestic market, Rafael has diversified its business with a variety of projects and territories, including developing markets with growth potential. In addition to its dominant missile sector, the company is allocating resources to future growth engines adapted to the current and future battlefield in communications, intelligence, information processing systems, defense systems, and urban warfare solutions."
Midroog adds that the company strategy is to expand its presence in developing markets with growth in defense budgets and a need for advanced modern weaponry, in some of which it is already active, while others are new markets for the company. Midroog also wrote, "In our opinion, the expected growth will partially offset the effect of increased competition, so that the operating profit margins of the companies in the industry will remain fairly stable."
As for Rafael's liquidity, Midroog notes, "The company has an outstanding liquidity profile resulting mostly from advances from customers. In addition, the company has good financial flexibility due to unencumbered assets and good access to sources of financing."
Published by Globes [online], Israel Business News - www.globes-online.com - on January 24, 2017
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