Friendly Financing: From The U.S. To Israel

In July, Bezeq, the Israeli state-owned telecommunications company, asked for proposals from U.S. investment banks to float a $200 million bond issue. To the surprise of Israeli financiers, six major U.S. investment banks rushed to respond. The firms saw the Bezeq deal as a way of positioning themselves for "much bigger business in the months to come," says Dan Halperin, who advises Salomon Brothers Inc. in Israel.

Now that President Bush has agreed to $10 billion in U.S.-guaranteed loans for Israel, the business should soon be flowing Wall Street's way. The money will likely be raised through 30-year bond issues underwritten by the big New York investment banks.

IN THE PIPELINE. True, the firms won't make a bundle from the deals. The underwriters will earn fees of about 45 basis points, or $45 million on the full $10 billion, a typical fee on guaranteed bonds--and that will be spread out over five years. But about $900 million in other offerings, both bonds and stocks, are in the pipeline along with the loans. Some issues will result from newly elected Prime Minister Yitzhak Rabin's efforts to give a new push to the privatization program that had fizzled under his predecessor, Yitzhak Shamir. The government has said the Bezeq financing will be the first step toward privatizing the company. It has tapped Salomon to run the sale of its 50% interest in Zim Israel Navigation Co. and may soon float a one-third stake in Israel Chemicals Ltd. Both issues will be equity financing, where the fees are a lot higher than for bonds.

U.S. securities firms have worked with Israel for years and are familiar enough with the territory to bring a greater volume and variety of Israeli issues to market. "With the government's announced intent to hasten privatization, I see a surge of distributing Israeli securities both at home and abroad," says John G. Heimann, chairman of Merrill Lynch & Co.'s Global Financial Institutions Group.

In early August, Merrill was the lead underwriter on the $100 million initial public stock offering of the Israeli electronics company Tadiran Ltd.--the largest Israeli initial public offering ever in the U.S. Other investment banks active in Israel include Kidder Peabody--which has advised the government on previous financings--Shearson Lehman Brothers, Salomon, First Boston, and Bear Stearns.

Indeed, Kidder, Peabody & Co. is working on an $85 million bond financing for the Amos I communications satellite, to be launched by Israel in early 1994. The issue would securitize the payments from the government and the companies that use the satellite.

Despite the likely surge in activity, Israeli deals aren't easy. Political resistance has slowed privatization since its start in 1988. Still, Rabin seems willing to be flexibile in political negotiations. That may carry over to dealmaking.

      Bonds                    Value (millions)
      GUARANTEED                 $10,000*
      AMOS I SATELLITE                85
      BEZEQ                          200
      ISRAEL ELECTRIC CORP.           80
      FIRST ISRAEL FUND               60
      ISRAEL CHEMICALS               360
      ZIM                             85
      *Over five years
      DATA: BW
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