Israel Plans Eurobond Issue to Help Finance 2014 Deficit

Treasury delegation will head to Europe for planned bond sale, expected to exceed one billion euros.

Israel will issue euro-denominated bonds to cover part of the forecasted 2014 state budget deficit, Finance Ministry Accountant General Michal Abadi-Boiangiu said on Thursday.

The size of the bond issue will depend on market conditions, but it is expected to exceed one billion euros ($1.36 billion). Most Israeli government bonds issued in recent years were denominated in dollars.

A special delegation from the debt management unit of the accountant general’s office is scheduled to meet with foreign investors in Europe in the coming days to promote the planned bond sale. The bond underwriters will be Barclay Capital, Goldman Sachs and Citibank.

The world’s three most important ratings agencies have awarded relatively high ratings for Israeli government debt, which should help the upcoming bond issue raise money at relatively low interest rates. Moody’s rating for Israeli government debt is A1 with a stable outlook, Standard & Poors gives Israel an A+ with a stable outlook while Fitch rates it as A- with a positive outlook.

Israel has an external debt of $30 billion, which comprises 16.4% of the total government debt. Some 85% of government debt denominated in foreign currencies is in dollars, 13% is euros and the remainder in various other currencies.

The last government bond issue overseas occurred a year ago, when Israel sold $2 billion in 10-year and 30-year bonds. The last time euro-denominated issued was in 2010, when 1.5 billion euros’ worth of 10-year-bonds were issued.

In a related development, the accountant general’s debt management unit reported on Thursday that it had carried out $340 million in dollar-shekel hedge transactions on Israeli government debt in recent months to reduce the government’s exposure to fluctuations in the exchange rates and to help the Bank of Israel combat the appreciation of shekel against the dollar.

To date, the accountant general’s office has undertaken hedging operations worth $3.4 billion, equivalent to more than 10% of the size of the government’s external debt.

Ofer Vaknin