Corporate bonds issued on the Tel Aviv Stock Exchange reached an all-time high of NIS 47 billion in the first half of this year boosting the annual rate of credit to the business sector to a record of 21 percent during the period.
"In the first half of 2007 the business sector issued an unprecedented NIS 47b. of bonds on the TASE, more than the amount issued over the whole of the previous year, so that in the last year-and-a-half the balance of corporate bonds has doubled," economists at the Bank of Israel said Sunday. "As a result, the share of all bonds (tradable and non-tradable, in Israel and abroad) in total credit to the business sector continued to rise rapidly in the first half of 2007, and accounts for more than a third of credit to that sector."
However, the central bank noted that at the same time, there was a surge in issues on the bond market, particularly by non-rated companies, with low rates of return and risk margins in the first half of 2007, which occurred with the rise in purchases by mutual funds.
"Recently the value of financial assets in Israel, mainly in corporate bonds, declined, with a sharp rise in rates of return and risk margins, particularly of unrated bonds," stated the central bank.
The collapse of the Heftsiba building company left many institutional investors with bonds of highly dubious value and has had a psychological effect on the market in an environment of high interest rates and high pricing for bonds.
Looking ahead, consulting and underwriting firms recently surveyed by The Jerusalem Post expected a slowdown in public offerings in the third quarter given current global market conditions of high interest rates and uncertainty as a result of the subprime mortgage crisis in the US.
Total credit in Israel, including credit to the government, the business sector and households stood at NIS 1,479b. at the end of June.
In the first half of 2007, the annual growth rate nearly doubled to 6% due to the acceleration in the rise of credit to the business sector, compared with the rise over the last four years, when it went up by between 3% and 5% a year. At the same time, credit to the government continued to decline in the first half, falling at an annual rate of 6%.
Most of the first-half's accelerated rise in credit to the business sector derived from the breakthrough in non-banking credit financing in recent months compared with previous years. As a result, the share of bank credit in total credit to the business sector continued to fall rapidly in the first half of 2007, dropping to 53%, from 76% in 2002.
The rate of growth of credit from institutional investors to the business sector, increased further in the first half, reaching an annual rate of 48%. In addition, households' holdings in the form of purchases of mutual funds that invest in corporate bonds also played a part in boosting the increase in credit to the business sector.
"The balance of their holdings of tradable corporate bonds issued on the TASE almost doubled in six months, from NIS 24b. at the end of 2006 to NIS 42b. at the end of June 2007," the Bank of Israel noted.