Regulators Block Bond Issue as It Is Underway

In rare move, officials say Nawi Brothers offering violated Israel's Banking Law.

Eyal Toueg

In a rare move by regulators, the Israel Securities Authority on Tuesday told Nawi Brothers Group to halt a sale of convertible bonds as it was underway, saying that offering that kind of security to investors violated Israel’s Banking Law.

Acting on the advice of the Bank of Israel, the ISA acted after Nawri Brothers, a company that provides non-bank loans, had already completed the institutional tranche of a projected 250 million-shekel ($64.6 million) debt issue.

Regulators barred the companies from going ahead with the second, public tranche of the offering until the company made it claims. It set a May 18 deadline for it to do so.

Convertible bonds are debt securities that entitle the holder to convert them to stock at a later date.

CEO Dori Nawri said he didn’t understand why the central bank acted and suggested that it might be an effort to rein in competitors [like Nawri Brothers] to the commercial banks.

“We understood that we can’t issue ordinary bonds, but I can’t understand why we are barred from issuing convertible bonds,” he told TheMarker. “The Bank of Israel is a large and powerful body, but it’s not the regulator we’re answerable to and we don’t consult with it, just to the ISA.”

Nawri Brothers, which has traded on the Tel Aviv Stock Exchange since 2011, deals in check discounting, in which it supplies cash, less fees, to clients against a check that has yet to clear. For many businesses, check discounting enables them to better manage cash flow.

Nawri Brothers earned 63.5 million shekels profit last year on turnover of 112 million shekels.

The central bank is under pressure from Finance Minister-designate Moshe Kahlon to create more competition for Israel’s banks, but Bank of Israel Governor Karnit Flug is concerned that competition will undermine the financial strength of the banks.

The institutional tranche had met with strong orders of about 530 million shekels and the coupon had been fixed at 2.2%, with a A-minus credit rating, causing Nawri Brothers to opt to expand the issue to 400 million. Investors included many of Israel’s leading institutional investors, such as Psagot, Meitav Dash and Harel Insurance & Finance.