Cellcom Helps Feed Corporate Bond Sales ‘Frenzy’: Israel MarketsAlisa Odenheimer and Yaacov Benmeleh
Israel’s lowest borrowing rates since 2009 are spurring a burst of corporate bond sales, with companies taking advantage of falling yields to recycle debt and pare expenses.
Companies from Mizrahi Tefahot Bank Ltd., the country’s fourth-largest bank, to Ashtrom Properties Ltd., a commercial real estate developer, raised 25.2 billion shekels ($7.3 billion) in the first five months of the year. That’s 50 percent more than the same period last year, and the most in the first five months of the year since 2007, according to Tel-Aviv Stock Exchange data. Cellcom Israel Ltd., the nation’s largest mobile phone provider, will be selling bonds for the first time since 2012, according to a bourse filing.
“They’re getting rates they won’t be able to get in the next few years,” said Effi Cohen, a bond trader at Leader Capital Markets Ltd. in Tel Aviv. “The market is in a frenzy from the low rates floating around.”
Israeli borrowing costs have plummeted as the central bank cut its benchmark rate 10 times since 2011 to 0.75 percent in a bid to boost growth amid a faltering global economy. The drop has the Tel-Bond 40 Index of corporate bonds trading at 307.57 at the close in Tel Aviv, near a record high. The yield on the 5 1/2-year Mizrahi bond sold on May 28 was 2.77 percent, 0.61 percent above similar maturity government bonds.
The surging interest in corporate debt isn’t unique to Israel, said Raz Mor, a bond analyst at Meitav DS Investments Ltd. in Tel Aviv. “It’s not just a domestic trend, it’s a global trend,” Mor said. “Investors are looking for yields.”
As central banks from the U.S. to Europe prop up the bond market with near-zero interest rates that are pushing global government bond yields to record lows, investors are accumulating relatively riskier corporate debt in search of higher returns. In Europe, borrowing costs fell to a record in May, drawing a surge of issuance from companies based within and outside Europe.
In Israel, companies raised 12.9 billion shekels on the debt market in May alone, compared with 4 billion shekels a year earlier, according to bourse figures. A total of 6.9 billion shekels came from debt sold by the partners in Israel’s Leviathan natural gas field.
With weak inflation and growth reports in May, there were strong expectations for a rate cut that drove the price of government bonds up and yields down across the board, Cohen said. April inflation was 1 percent, the bottom of the government’s 1 percent to 3 percent target band, while first-quarter growth was 2.1 percent, down from 2.9 percent the previous quarter.
Borrowing costs may decline still further before the easing trend reverses. Six of 12 economists in a Bloomberg survey expect the central bank to cut its lending rate to 0.5 percent in its next decision on June 23. The Bank of Israel research department said at the end of March that it expects borrowing costs to rise in 2015, to 2 percent by year-end.
“As long as rates are so low and with a very real possibility and likelihood that the Bank of Israel will cut rates further, be it this month or next, this is a great opportunity for corporations to issue debt,” said Jonathan Katz, economist strategist at Leader Capital Markets Ltd. in Tel Aviv. “Everyone will want to get into the party before it ends and rates move higher.”