The Israeli government paid the Israel Bonds Organization some $40 million last year for its help in selling $1.3 billion of bonds in the United States, a relatively high fee that works out to 3% of the funds raised.
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The figure came as the Movement for the Freedom of Information, a nonprofit organization dedicated to government transparency, was able last week to obtain figures on how much the Israeli Finance Ministry’s New York delegation spends every year. The delegation is responsible for assisting Israel’s investor relations and managing debt sales in coordination with the Israel Bonds organization.
The treasury had refused to release the figures until now, even though rules require quarterly disclosure, the movement said.
All in all, the government spent close to 193 million shekels ($53 million at current exchange rates) in fees for bond sales, an average rate of just under 2%. Israel Bonds accounted for about 40% of all the $3 billion in government bonds Israel sold in the U.S. last year, but the fee it pays to other underwriters is much lower.
One reason Israel Bonds charges such steep fees is that it sells its bonds in the retail market, mainly through community events, rather than in big bloc sales to institutional investors, all of which entails higher costs. The organization has a client list numbering 600,000, many of them people who got their first bonds as bar and bat mitzvah gifts.
Founded in 1950 at the initiative of then Prime Minster David Ben-Gurion, Israel Bonds was created to provide a badly needed source of capital at a time when the financial markets regarded the fledging state as too risky an investment. Over the last 25 or more years, Israel has been able to successfully tap the commercial bond market, but Israel Bonds continues to play a role in the country's favorable credit rating.
“[Israel] has deep and liquid local markets, good access to international capital markets, an active Diaspora bond program, and U.S. government guarantees in the event of market disruption,” the credit rating firm Fitch said two weeks ago when it affirmed the country’s A-plus rating and Stable outlook.
Treasury officials say they have good strategic reasons for continuing to raise debt through Israel Bonds. While Israel is welcome in international debt markets now, a severe deterioration in its national security situation could deter investors, as has happened in the past. But Israel Bonds investors are more likely than not to step up their purchases in such a case.
The Finance Ministry’s New York delegation is in the process of being downsized. Its staff will be cut by half and it will cease providing services to the Economy and Industry Ministry and the Tourism Ministry.