The municipality of Ra'anana will raise NIS 200 million from a municipal bond issue directly placed with institutional investors.
"For the first time an Israeli city will be raising money exactly as if it had been a corporation," said Nahum Hofri, Ra'anana mayor.
The municipal bond market in Israel finally kicked off in September when the Ramle municipality issued the first municipal bond but Ra'anana will be the first to issue so-called general obligation bonds.
GOs are municipality bonds, which are issued with the belief that a municipality will be able to repay its debt obligation. GOs represent a promise by the issuing municipality to levy enough taxes as necessary in order to make timely and complete payments to investors and no assets are used as collateral.
"For the past 11 years we have ended the year with a surplus," Hofri boasted.
Ra'anana will issue up to NIS 200m. of bonds, which will mature in 10 years.
Proceeds from the bond issue will be used in part to build, develop, and operate specific infrastructure and road projects as well as projects for sports, entertainment and educational activities in the city. Some NIS 85m. would be used to fund town projects and NIS 115m. to pay off banking loans.
Issuing municipal bonds entails credit rating and exposure while also offering a way to vary sources and reduce dependence on the banks. Until the past few months, the only way for Israeli local authorities to raise credit was through banks. In its forecast for 2006, Maalot, the credit rating agency, estimates that this market will intensify and many cities will decide to tap into the commercial potential inherent in municipal bonds.
Ron Lubash, a Raanana local and one of the founders of Markste is advising the municipality of Ra'anana in the deal.