August turned out to be a blockbuster month for corporate bond issues, with low interest rates spurring companies on. Some NIS 2.5 billion in new debt was issued through the month, three and a half times the NIS 700 million raised the same time a year ago.
The increase was part of a broader 43% jump in bond issues in the first eight months of the year, with NIS 20 billion in bonds issued by nonfinancial companies, compared with NIS 14 billion in the same period last year.
However, according to a summary provided to TheMarker by ratings company S&P Maalot, most of August's bond offerings were relatively small, averaging just NIS 160 million apiece. Additionally, close to 70% of the bonds issued in August were by real estate companies.
"Low interest rate levels and low-risk spreads are encouraging companies to raise money through bond offerings, in order to roll over debt and improve their financing conditions and level of leverage," said S&P Maalot CEO Ronit Harel Ben-Zeev. "From the perspective of the interest rate environment, the likelihood that interest rates will be reduced further is slim."
Leader Underwriters CEO Ranan Cohen-Orgad said 17 new and expanded bond series were made last month, compared with just seven in August 2012. "The winds of war blowing last week [over Syria] did not halt the pace of planned offerings, which will continue in the beginning of September," she said.
Another trend identified by S&P Maalot is the increasing share of secured bonds in debt market offerings. The ratings company found that 58% of total bond offerings from January-August were collateralized, compared with 37% of total bond offerings in 2012. But the quality of the collateral declined from last year, with more risky assets - such as untraded securities - accounting for 35 percentage points of the total.
Nevertheless, said Ben-Zeev, many of the companies that were provided the best collateral also tended to be the strongest financially, with a credit rating of A or more. “We believe this figure provides further evidence of the strengthening and improvement of the nonbank credit market,” she said. ”Providing collateral was once something reserved almost entirely for the banking system. Bonds didn’t have it.”
The equity markets also heated up in August, with some NIS 380 million raised through stock offerings - up from NIS 52 million in the same month last year. The largest was a NIS 200 million initial public offering by the Israel Direct Insurance Company, at a price that valued the company at NIS 1.1 billion.
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