Daily Roundup / Avgol, First Issuer of 2013

Leader recommends banking on bank stocks while Carmel Olefins' creditors pledge to keep turning a blind eye.

Avgol carries off first issue in 2013: And a big one it was. Avgol, which makes non-woven textiles (think wet-wipes, diapers, hygienic napkins) was not only the first Israeli company to issue debt in 2013, it ran into heavy demand of half a billion shekels for its bonds. It raised NIS 120 million from institutional investors and will be raising NIS 30 million more from the general public later this week. The company expanded its series B2 bonds, which now consists of NIS 225 million outstanding.

Leader Capital Markets likes bank stocks in 2013: Yes, the index of Israeli banks gained 23% in 2012, which doesn't mean it can't gain more. Equity analysts at Leader Capital Markets like the bank shares in 2013 but foresee pharma and telecom shares going much of nowhere. The analysts feel the three big Israeli banks – Hapoalim, Leumi and Discount – are trading at roughly 15% below their fair value. But they suggest keeping a distance from telecoms, and specifically from the Bezeq phone company. The pressure of competition in wireless, and general uncertainty, will continue to weigh on the companies, Leader Capital Markets suspects. Moving onto interest rates, Leader thinks they're going to fall by another half percent this year, helping companies raise debt. Its absolute favorite stock this year: chipmaker TowerJazz, where it sees an upside of 88%. In biomed, its pick is vaccines maker Kamada.

How did Leader's predictions for 2012 pan out? All that said, how well did Leader Capital Markets call 2012? At the start of the year its analysts recommended Israeli banks, which did gain 23% in the year. They liked Bank Hapoalim, which gained 32%. The analysts also recommended real estate stocks: that index gained 15%. But their faves in the real estate pack were sluggish, relatively speaking: Azrieli gained 8% and Nitsba gained 7%, both underperforming the real estate pack.

Banks agree to ignore Carmel Olefins covenants: Carmel Olefins is in breach of its financial covenants but its creditor banks agreed this week to continue ignoring the situation. If they hadn't, $174 million in long-term debt could have been called in. Oil Refineries, Carmel Olefins' parent, has a general plan to merge some of its subsidiaries including this one, at which point it may undertake $545 million of Carmel Olefins' debt. Stay tuned.

Africa Israel buys back bonds: After sweetening its offer, Africa Israel Investments partially completed a debt switch, designed to replace NIS 3.8 billion. In practice investors agreed to switch NIS 1.5 billion in par value terms, or 42% of the outstanding bond series, which is enough; the company needed acceptance of 25%.

Ludan Engineering Co. hires: Ludan Engineering Co. has agreed to hire 120 people away from Beny Steinmetz's Bateman-Litwin group. Bateman will cover their wage costs for five months, minus NIS 3 million. That is the amount the two companies estimate Ludan will make doing projects for Bateman, projects still under negotiation, one should note; there is a contingency in the agreement in the event the projects to not materialize by the end of May. The employer's cost for the 120 people should run as high as NIS 2 million to NIS 2.5 million a month.

With reporting by Eran Azran, Michael Rochvarger, Yoram Gabison

Bezeq Israeli Telecommunication Corp. headquarters in Tel Aviv, Israel.
Bloomberg