In the wake of the war, the debt market returned to Aviv Aviv and entered into distress for a Tel Aviv corporation. The fourth week of fighting opens on the stock exchange with almost a fifth (18%) of the bond series of the companies traded at a double-digit loss – indicating investors’ fear of all companies repaying their debt. Those bond series make up 8% of the total corporate debt traded on the local stock exchange , which are worth about NIS 34.
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reflect a considerable increase in relation to the alarming trend observed already in March of this year. So, Globes checked 86 bond series with a double-digit yield, compared to 131 today. The total debt at risk also increased – NIS 34 million today, compared to NIS 25 in March.
“Investors do not know where things will develop”
The intensity of the crisis is also clearly visible in the current returns of the corporate bond indices of the Tel Aviv Stock Exchange. The Kelly Tel-Bond index opened the trading week with the yield inherent in it standing at 7.1% – the highest level since the Corona crisis. At the time, the Bat Shoah benchmark reached a maturity of about 8% and in Israel initiated a plan to purchase corporate bonds in the amount of NIS 15 in order to prevent them from falling.
What is “garbage yield”?
A nickname for bonds that trade at a high yield (usually over 10%) that reflects a concern that a company will not be able to pay back its debts on time due to liquidity difficulties
Dror Karni, CEO of the financial management company Karni Family Office, tells Globes that “the step up in corporate bond spreads is related to the fact that the risk premium in the local market continues to soar against the background of the war in the south and the uncertainty regarding its continuation and the exposure to additional sectors. – CDS (the risk premium on bonds of the Israeli government) that tripled the prices and testify to the concern about the economic blow that the war will land on the economy.”
A senior official in the capital market states in a conversation with Globes that “Investors do not know where things will develop. It is not clear if Hezbollah will respond and in what way, but it is clear to them that it is different from previous rounds of fighting, this time it will be a continuous move of at least a few months.” According to him, the main problem of the companies whose traded debt reached a double-digit holocaust, is that they cannot recycle the booklet – that is, raise new debt designed to cover the debt at risk. “There are companies where the investors do not price a debt settlement,” he says. “But on the other hand, the bonds are trading at a double-digit yield, at least this cannot recycle the market in the bond market.”
To the question of whether the Bank of Israel will intervene and support the corporate bond market, as it did during the epidemic, the senior assesses that “it may be that at some point a government entity will be required to make a significant move in the debt market. I guess no one wants to see large companies in the economy drop like flies.”
Despite Globes’ request, the Bank of Israel refused to comment on the question of whether they will soon become involved in the corporate bond market, but they referred us to what the governor, Prof. Amir Yaron, said at the press conference last week, close to the interest rate decision. The governor did not independently mention a plan to purchase bonds, but It should also be noted that the Bank of Israel’s interventions in the financial markets were aimed at stabilizing the markets and maintaining normal activity “while reducing the uncertainty for the economy and the public at this time”.
The real estate companies are the first to be affected
Among the entities whose marketable debts signal distress are leveraged holding companies, entrepreneurial real estate companies, and non-bank credit companies. That is, the direct victims of the security situation. Some of these companies are held by business sellers.
one of them is Hanan Mor . bond (Series 12 ) of the real estate development company he owns opened the fourth trading week of the war with a yield of 50%, embodying investors’ concern about its solvency. The same bond was traded on the eve of the war with a yield of only 11%.
This month, the company’s debt in all its bond series is estimated at 612 million shekels. On the eve of the war, the Hanan Mor company promoted several transactions for the sale of properties and lots in the amount of at least hundreds of millions of shekels in order to increase liquidity. One of those transactions, the sale of a lot in Tel Hashomer, was rejected Due earlier this month for the coming week.
Another leveraged company that came to the crisis in a problematic situation is the holding company Discount investments (DSKSH), owned by Tzachi Nachmias (serving as chairman) and the brothers Daniel and Michael Zalkind, owners of Alco. DSKSH owns traded debt of more than NIS 2 billion. On Sunday, series 6 The company’s bonds traded at a 26% discount, compared to only 9% on the eve of the war (October 5).
Also the subsidiary, the construction company Properties and building , suffers from the security situation. Two of the three property and building bond series (ninth’ and-D ), for which the hobby is NIS 2.2 billion, are traded at a double-digit yield of 12% and 10.5% respectively.
Many real estate companies found themselves in a similar situation. So did a company Norstar of Haim Katzman, which controls the global commercial real estate company G City . On the eve of the war, bonds were traded (Series 12 ) of Norstar Bat Shoah for a redemption of 10%. At the beginning of the week, it had already jumped to the holocaust of 16%. Norstar’s total traded debt is estimated at NIS 348 million.
The same happened to the residential construction entrepreneur a B C D , headed by Michael (Michi) Ratzon, who previously served as a Likud MK and deputy minister. His son Ram Ratzon is the controlling owner and CEO of the company. The upheaval in the height market is exaggerated it seems. Because the company has two series, the money of series A, according to estimates, is already in the safe for more. the recruitment) and have not yet been used. B bond of the company traded at a yield of 9% on the eve of the war, and at the beginning of the week it reached 14%.
The real estate industry is, as mentioned, one of the direct victims of the war. The construction sites throughout the country were shut down for weeks due to the security situation, and there are almost no workers left. Almost a third of the construction workers in Israel are Palestinians from Gaza or the West Bank, and currently all of them are absent from the construction sites. Even the Bank of Israel itself specifically for banks in the sector in the performance of real estate and construction companies. On the other hand, the future demands, among other things for the restoration of buildings and infrastructure damaged by the war, are bound to benefit the industry in the longer term.”
The companies reached the threshold of dangerous debts
The high yields also characterize non-bank credit companies. The market estimates that borrowers from these credit companies are at a higher risk. Therefore, times of crisis are also much more vulnerable. That’s what happened to the company Learn projects of Ryan Moand, which provides credit mainly from the Israeli Arab sector. its bond (B’ ) trades at a junk yield of 125% with the company’s total bond debt estimated at NIS 429 million.
Among the other companies whose bond yields soared to particularly high levels, Bikur is also a company Communication space , which provides satellite services using Amos satellites. The company’s 16th series trades at a yield to maturity of 112%, but it should be noted that it is in the process of debt settlement. The amount of the company’s bonds is estimated at approximately NIS 976 million.