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Funding Instruments How the Government of Israel Raises Capital Abroad: Main Instruments The Israeli Government uses five main instruments of external funding: 1. Israel Bonds Organizations The Government of Israel sells State of Israel bonds to private and institutional investors in North America, South America, and Europe through four independent organizations that operate under local laws and are supervised by local authorities: The Development Corporation for Israel, operating in the US; Canada Israel Securities, Ltd., operating in Canada; The Development Corporation for Israel (UK), operating in the UK; Israel Bonds International, operating in all countries other than the US, Canada and UK. The purchase of State of Israel bonds is a way to express support for the State of Israel and to earn a fair return on one's investment. The spectrum of investors transcends Jewish communities and individuals who wish to express their support of Israel. Investors include mainly private investors, but also hundreds of labor unions, foundations, corporations, insurance companies, associations, pension funds, universities, and other institutions. 2. Public Offerings In 1994, the Accountant General decided to establish and develop Israel's presence in international capital markets by carrying out public offerings in global markets. This was made, partially, in order to create a substitute for loans guaranteed by the US government. Since 1995, the Ministry of Finance has made eleven public offerings abroad in the Yankee, Euro, and Samurai markets, as well as in the Global market. The size of these offerings has gradually increased, from a level of $200 million-$250 million between 1995 and 1998, up to an amount of $1 billion in 2006. The government's capital-raising activities in global markets serve as a benchmark for Israeli companies' debt in the international markets and encourage Israeli firms to issue debt in those markets.  3. Public offerings under U.S. Government Guaranteesã In April 2003, the United States approved up to $9 billion in loan guarantees for the State of Israel to be issued through 2005. This program was extended until 2011. The notes issued by Israel under U.S. Government guarantees enjoy a credit rating similar to U.S. Government notes (AAA). Therefore in practice the yields on these notes are only slightly higher than the yields on U.S. Government notes. It is important to mention that despite this attractive funding option, Israel does not intend to stop issuing unsecured sovereign bonds in global markets. In 2003 Israel issued a sum total of $2,350 million, out of which $450 million are for 30 years and $ 1.9 billion are for 20 years. The U.S. government has deducted $289.5 million out of the original sum of the guarantees due to Israel's civilian investment beyond 1967 borders. In 2004 Israel issued a sum total of $ 1,750 million for 20 years. The issuances were carried out by a competitive bid among 14 of the biggest investment banks in the world. Under this issuance system, each bank placed a bid for underwriting all the bonds. The bank with the best proposal in terms of lowest yield per issue wins the auction and purchases the whole amount of bonds offered. The auction was carried out via electronic submission through a designated website built by the Ministry of Finance that was open for the participants for a period of 15 minutes until the auction closure. After being approved by the U.S. Agency for International Development, the results were delivered to the banks directly following the auction. On the first issuance Merrill Lynch was the winning underwriter for
the 20-year notes ($ 1,150 million) and Barclays Capital was the winning
underwriter for the 30-year notes ($ 450 million). Lehman Brothers won
the second ($ 750 million) and third ($1 billion) issuances, and Merrill
Lynch won the fourth ($ 750 million). |
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