Electric Co Limps to Mere NIS 300 Million Bond Placement

Utility now mulling public debt offering

It was one of the feeblest debt placements the Israel Electric Corporation has ever experienced. The utility on Wednesday managed to place a mere NIS 300 million worth of bonds with institutional investors, even though its debt had received a blue-chip AA+ rating from Maalot.

There is no question that the IEC had hoped to raise much more, although the precise amount is not known.

Interest on the 8-year IEC paper closed at 6.5% - but that is not its effective rate to holders. It does pay that rate of interest each year but since the bonds were issued at a premium of 18 shekel per each NIS 100 face value, the effective yield drops to 4.8%.

Comparable State of Israel linked bonds of similar duration are issued at a yield of 3.2%.

The Maalot rating agency had granted an AA+ rating to up to NIS 2.5 billion worth of debt offered by the IEC in 2007 and 2008.

For the sake of comparison, the Yes satellite TV company managed to raise NIS 620 million yesterday, offering bonds with a significantly lower rating of BBB.

There could be several reasons for the low demand for IEC debt. One is that the company has been flooding the market with its bonds for years and in theory at least, perhaps institutional investors feel they have enough of its paper. More likely is the fact that the IEC is no longer one of few companies issuing debt.

Once upon a time corporate bond offerings were unknown but now they are commonplace, and big ones at that. All corporate bond offerings face competition over institutional money.

A capital market player surmises that investors are dissatisfied with the utility's conduct, especially in respect to labor relations. "They want the company to become more efficient," he said.

The company, which refused to comment for this report,