'Real estate firms to face debt issues this year'

Zohar Goshen: Though we are seeing a recovery in economy, we need to continue dealing with lessons of crisis.

January 20, 2010 11:29
2 minute read.
ISA chairman Zohar Goshen.

zohar goshen ISA 248. (photo credit: ISA)

The Israel Securities Authority warned on Tuesday that more companies will be facing debt settlement difficulties over the course of the new year.

"The global financial crisis has not bypassed Israel. Last year, 20 percent of bond-issuing companies were in difficulties according to our calculations. Looking ahead to this year we estimate that in addition to that 20%, another 8% of the companies will face debt repayment difficulties," ISA chairman Zohar Goshen said at a capital market conference in Jerusalem.

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"The majority of companies expected to face problems in recycling debt are real estate companies, many of which have active operations in Israel and not necessarily only in Eastern Europe," Goshen said.

He added that the forecast for 2010 showed that 21% of bondholder debt was expected to be in trouble. Goshen's estimates are based on an internal rating study by the ISA examining a sample of the biggest borrowers that have issued bonds and are facing the risk of defaulting on debt.

In the past few years, before the global crisis, a booming corporate bond market developed in Israel with hundreds of companies raising hundreds of billions of shekels from institutional investors. The global financial crisis has meant companies face difficulties repaying bondholders.

According to market estimates, out of the NIS 240 billion in corporate bonds due in 2017, NIS 37b. will be troubled debt.

"Although we are seeing a recovery in the economy, we need to continue to deal with the lessons of the crisis," said Goshen. "For this purpose a committee needs to be established bringing together the three main regulators, which are the ISA, the Banking Supervision [which operates under the Bank of Israel] and the Capital Markets, Insurance and Savings Supervision [which operates under the responsibility of the Finance Ministry]."

Also speaking at the conference, former accountant-general at the Finance Ministry Yaron Zelikha blamed regulators for failing in their job.

"In Israel the regulators have failed in their job and should carry the responsibility," Zelikha said. "The solution to the crisis is better regulation. The various regulators from the Banking Supervision to the Capital Markets, Insurance and Savings Supervision need to be merged into one body."

Over the past year, the Bank of Israel has reiterated its call for the establishment of a single regulatory authority for all financial institutions and markets in Israel as a more efficient and effective way to cope with financial crises. There is a general consensus among the watchdogs that the separation of regulatory bodies is problematic, in particular at a time of a crisis when fast action is needed that demands full cooperation. However, there has been much disagreement and power wrangling between the Bank of Israel and the Treasury over the question of the body operating a single authority.

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