Treasury to Borrow $1 Billion Overseas

The State of Israel hopes to sell about a billion dollars' worth of bonds overseas, perhaps as soon as this week. The money will be raised through dollar-denominated bonds in an offering led by Deutsche Bank, Goldman Sachs and JPMorgan.

Although the offering is to take place within days, the venue hasn't been finalized. The bonds might be sold on Wall Street, in Europe or in both markets. In any case, the treasury is targeting foreign markets, rather than tapping Tel Aviv circles, to avoid depressing the price of government bonds at home.

The Finance Ministry had reportedly planned to carry out the offering this week, but was deterred by the intense volatility on the markets. Officials feared the state couldn't raise the full amount it wants at reasonable interest rates.

The money is earmarked for financing the government's current activities, or in other words, to reduce its deficit at this time of imploding tax revenues.

The Finance Ministry has lowered its forecast for tax revenues this year to just NIS 180 billion, which is 10% below its previous estimate.

Earlier this week Finance Minister Roni Bar-On told prime minister designate Benjamin Netanyahu that tax collection could well drop NIS 30 billion below target this year.

Capital market sources say the treasury hasn't decided yet whether to raise the money directly or to take advantage of U.S. guarantees. The guarantees would serve to lower the rate of interest Israel has to pay; on the other hand, Jerusalem wouldn't want to squander the right unnecessarily. The treasury would only take advantage of the guarantees if it can't lock in decent interest rates.

The guarantees date from 2003, when Washington agreed to back up to $9 billion worth of Israeli government bonds. So far Israel has used $5 billion of the guarantees.

Ten-year Israeli government bonds are trading abroad at a 4% yield, compared with 2.82% for comparable U.S. T-bills.