It is not every year that the debt market, which is considered a solid investment channel, gets a dramatic change of such a significant element for it – the interest rate. In the past Hebrew year, waves of rising inflation hit central economies and led to aggressive increases in interest rates in the US and, as a result, in many other countries as well, including Israel.
This trend of ever-increasing interest rates gave a boost to the local debt market, as revealed by the summary compiled by the Midrog company of the market’s performance in 2015 (which benefited from one additional month). The summary shows that the total issuance of corporate bonds was NIS 100 billion, an all-time record and an increase of 85 % in relation to the previous Hebrew year. In relation to the year 2015 there was an increase of 49%. In addition, a record was recorded in the number of debt issuers, from 69 companies in Israel to 79 companies in the year ending.
The recruitment boom was led by the banking system, with the real estate sector also having an impressive representation. These industries are greatly affected, and in different directions, by the Bank of Israel’s interest rate movements, and in view of the decision in August to raise the interest rate by 0.75% to a level of 2%, and the forecast that this may reach in a year to 3%, the finance and real estate companies asked to take advantage of the current interest rate before it becomes more expensive.
The business sector also enjoyed a fruitful Hebrew year
The world that gradually emerged from the Corona epidemic found itself facing a series of challenges: delays in the global supply chain, both of raw materials and of various products; Shutdowns in China due to the “Zero Covid” policy; The war between Russia and Ukraine that led to a food crisis and a severe shortage that made energy prices more expensive. All of these led to an increase in the rate of inflation at the global level, to an annual rate of 8.3% in the US and in many European countries to a double-digit rate of over 10%. And in response to this, central banks resorted to frequent interest rate increases.
In the financial sector – the banks and insurance companies rushed to take advantage of the rising interest rate environment, and according to Midrog they raised NIS 41 billion, a jump of 772% compared to the year 2018, which was greatly affected by the Corona crisis, which was characterized by a high level of liquidity in the banking system, due to easing of the capital adequacy ratio On the part of the supervision of the banks (which liquidated the banks and at the same time reduced the need for debt raisings). In relation to the 2008, the finance raisings registered an increase of 127%.
Even in the business sector, that is without the financial institutions and government infrastructure companies, there was a fruitful Hebrew year. The sector’s fundraising totaled NIS 53 billion, an increase of 16% compared to the previous year, and 23.5% compared to the year before.
The real estate sector – Meniv and the construction companies, recorded the most significant jump – 32% in the volume of fundraising in 2015 to a total of NIS 32.7 billion, an increase of 31.8% from the previous year. Here, too, the expectation of an interest rate increase further down the road, as well as the high demand for apartments in Israel, pushed the trend.
Another branch that recorded growth in the volume of recruitments was the field of non-bank financing. Although in the last six months two small companies in the industry, Backing Holdings and Yount Credit, were involved in cases of irregularities and alleged fraud, the issuances in the field in question amounted to NIS 5 billion in 2015, a 76% increase compared to the previous year.
The increase is explained by the entry of a large number of companies into the non-bank credit sector, as well as the expectation of the companies operating in the sector for continued interest rate increases.
Midrog notes that direct financing is responsible for the bulk of the fundraising in this sub-sector, with approximately NIS 1.6 billion in 2018, approximately NIS 1.4 billion in 2018, and approximately NIS 1.3 billion in 2018.
“The corporate debt market continues to grow and develop”
And back to the banks, the prominence of the sector among the recruiters is evident: five of the ten largest issuers in the 2017 financial year came from the banking system, and of the first six places, four of the most prominent banks in the economy starred The fifth largest issuer was the Electric Company, which raised NIS 4 billion. The representative of the real estate sector in the top six was the Azrieli Group, which raised NIS 3 billion during 2015.
Avi Sternshos, CEO of Midrog, points out that “the 2018 fiscal year, which was a record year for fundraising in the corporate bond market, proves that despite the rise in interest rates in Israel, the corporate debt market continues to grow and develop, and is a major fundraising channel for leading companies in the Israeli economy.”