The corporate debt market in Tel Aviv is beginning to show signs of a credit crunch, when the prices of dozens of bond series dropped to double-digit yields, mainly in companies operating in the field of real estate in Israel and abroad. Experts in the fields of debt settlement express concern about the possibility of many companies falling into cash flow distress in the next two years.
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According to the same estimates, the Bank of Israel’s sharp interest rate hike could degenerate quite a few public companies into the difficulty of repaying their bond obligations on time. A Globes check shows that, as of today, almost every tenth series of bonds on the Tel Aviv Stock Exchange is trading at a double-digit yield, which shows concern about its ability to repay its debt. These are bonds totaling approximately NIS 20 billion, which make up approximately 5% of all negotiable corporate debt in Tel Aviv, which amounted to almost NIS 400 billion.
The various bond indices in Tel Aviv have traded in a negative trend over the past year, giving investors negative returns, sometimes in the double digits. This is in view of the Bank of Israel’s frequent interest rate hikes, which have increased the yield on government bonds (which are considered a solid and safer asset), and the decrease in risk appetite on the part of investors.
The Tel Bond 20 index, which includes the 20 largest bonds by value on the stock exchange, fell by 7% in the past year, and the yield embodied in the index currently stands at about 3%. The Tel Bond Global index includes bonds of the foreign real estate companies issued in Tel Aviv, and the yield inherent in it is approaching a double-digit level, standing at 9.6%, after a 2.1% decrease in the past year.
The sharp decline among Tel Aviv’s bond indices was recorded by the Tel Bond Shekel index for 5 to 15 years, which plunged in the summary of the last year by 11%, and the yield embodied in it currently stands at 5.9%.
The constant increase in bond yields is expected to create increasing difficulties for some of the companies that will seek to refinance their obligations in the future. Attorney and CPA Dr. Shlomo Ness, an expert on companies in insolvency and financial rehabilitation, and who has led quite a few debt settlements and company liquidation procedures, believes Because the current period is considered the calm before the storm.
“The next two or three years are going to be very challenging. Unfortunately, I’m not sure that the state understands and prepares for it. There are no new capital raisings in high-tech, and real estate is starting to take off. I estimate that there are close to 80 public companies that are currently in a ‘not fantastic’ situation. The dramatic increase in interest rates can accelerate the transformation of future defaults from a trickle to a surge. This could be a chain reaction that could affect the entire economy.”
Ness says that he returned two months ago from a visit to the USA, where he met with the top of the largest law firms in the country. “I met the colleagues of the profession. One of the things that amazed me was that everyone, without exception, said that the next two or three years in the global economy are going to be very difficult.”
“The whole world is in a state of inability to raise capital”
Attorney Guy Gisin, who was previously involved in the large debt settlements of IDB, Africa Israel and other entities, is also pessimistic. According to him, “Everyone looks at the real estate companies because they are leveraged, especially the entrepreneurial companies. They depend on the height The interest rate in the end, which affects both the public’s ability to buy the apartments, and the companies’ ability to settle their debt.
“But these are not the only companies that are affected. The whole world is in a state of inability to raise capital. There are technology companies that suddenly encounter financing difficulties. It is true that they raise the capital in equity (shares) and not in bonds, but due to the difficulties in raising – many of them turned to the gray market “.
Are we on our way to a new wave of debt settlements? Gisin points out that this “depends a lot on external factors. If you look in Europe at the war between Russia and Ukraine, or the continuation of inflation in the US, which leads to more interest rate increases. All these things are very influential.
“We in Israel have the regime revolution that is being brought down on us, and spending money from the country. I still hold the optimism that someday they will come to their senses here. But as money leaves the country, companies will end up with their backs against the wall because they will not be able to refinance debts. I see a lot of work in our departments in the next two years.”
A large part of the companies – from the fields of real estate
Examining the prominent bonds on the stock exchange that trade at double-digit rates of return indeed shows that a large part of the companies are from the real estate fields, with an emphasis on the prominent presence of the foreign real estate companies operating in the USA (BVI).
These are companies that raised tens of billions of shekels through bond issues on the Tel Aviv Stock Exchange, thanks to the relatively comfortable interest rates that could be obtained here in relation to the market in which they operate.
The sharp increase in interest rates in the US and here also has a negative effect on the American real estate industry and these companies in particular. That is why it is not surprising to find companies like the De Zarasai Group, which deals in the rental housing market in New York, whose Series C bonds, with a significant amount of over a billion shekels, trade at a yield of 20%.
Other prominent companies whose bonds are trading at double-digit yields are Prime Energy , under the control and management of Yaron Kikoz. The company is engaged in the establishment of solar fields, and a series B’ whose volume is estimated at NIS 55 million, trades at a yield of 35%.
Another company with a series of bonds of significant scope is Communication space . The company, which offers satellite communication services, received a new offer earlier this month for the acquisition of its control by Aaron Frankel. For the company, a series of bonds (16 ), which trades at a yield of 32%, and had a turnover of NIS 826 million.
Partial effect on Katzman’s move to Norstar
Another company that is in a difficult upheaval in recent months is Norstar the controlling owner of the global real estate giant G City (formerly Gazit Globe), which operates in the field of shopping centers. At the end of last year, the company controlled by Haim Katzman was caught in a spiral, and its bond yields soared, which led the controlling owner to take a complex financial step in order to Strengthening its financial stability.
Norstar raised 306 million shekels, of which approximately 90 million shekels were foreign, and at the same time an early redemption was made for a series of bonds it issued, while another series of bonds was replaced with a new and longer debt.
The move confirmed Norstar’s bond yield. For example, a bond 12 , of which NIS 154 million remained to be paid, already reached a yield of 9.5% earlier in February. However, the current crisis of rising and falling yields in the stock market has returned it to double-digit negative territory of 16%. The company’s stock has fallen by 78% in the past year.
The market situation has a negative effect on G City , the subsidiary and the base asset of Norstar, which owns commercial centers in Israel and abroad. The company has six bond series, and the total outstanding debt for those series is close to NIS 8 billion. series 11 , debt amounting to approximately NIS 4 billion, currently trades at the highest yield to maturity, 13%, compared to a yield of only 1.6% a year ago. The company’s stock has been cut in half in the past year.
The high yields of Hanan Mor and DSKSH
The one that has recently suffered from sharp declines in the securities it issued is the entrepreneurial real estate company Hanan Mor which bears the name of the controlling owner and chairman of the company. The bonds of Hanan Mor Series Hand is currently trading at a double digit yield of 15% (125 million NIS debt).
The company, it seems, ran into trouble last year due to the purchase of land in the Sde Dov complex in northern Tel Aviv for approximately NIS 1.5 billion, which the market fears was too large. Recently, Hanan Mor, whose stock has plunged in the stock market by about 70% in the past year (for a company value of less than NIS 250 million), is trying to realize part of its yielding assets in the city of Harish, amounting to half a billion NIS, in order to strengthen its financial strength.
Another company whose debt is traded at a double-digit yield is the holding company Discount investments (DSKSH), which is controlled by several entities, led by Mega Or (Tzachi Nachmias) and Elco (Zelkind brothers). Series J of the company, which operates in the fields of real estate (properties and buildings and guarantees), communications (Cellcom) and technology (Elron) trades at a yield to maturity of 11%, more than three times compared to last year.
Other prominent companies in Tel Aviv, which trade at a high single-digit yield, touching the double-digit level, include the infrastructure and construction giant Housing and Construction a bond (shekel) series 7 Its is currently trading at a yield to maturity of 9.2%, and the infrastructure fund Generation Capital that bonds A’ Its shares are trading at a yield to maturity of 8.7%.