(photo credit: Ariel Jerozolimski)
The Finance Ministry and the Israel Securities Authority are advancing the implementation of broader disclosure regulations to govern corporate bond offerings and help protect investors.
"In the wake of the global financial crisis, it has become necessary to make changes to disclosure requirements with regard to risk assessment of debt," Finance Minister Ronnie Bar-On said in a statement released by the ministry Wednesday. "The regulations will broaden the basic information at the hands of the public, and as a result the public and regulatory supervision of companies issuing bonds will be improved."
Israeli companies have raised billions of shekels through corporate bonds issued over recent years. But that has caused heavy losses to the unwary or less experienced investors and bondholders.
Bond prices fell as much as 19 percent last year as the global credit crisis spread to Israel. The Tel Aviv Stock Exchange's Tel-Bond 20 index is still down 10% from its July high.
Israel's corporate bond market has grown sixfold in the last four years as the economy expanded and deregulation created an appetite from institutional investors for debt securities. Daily trading in bonds more than doubled in the past three years to NIS 4 billion last year, while the total value of corporate bonds stood at NIS 281b., up from NIS 45b. in 2004.
Current legislation lacks sufficient disclosure requirements for the provision of proper and essential information to investors in bonds issued by corporations, the Finance Ministry said. Corporations are not obliged to provide detailed data in their financial statements regarding updates on the series of bonds they issue or data about recycled bonds. There is no reporting requirement within the financial statement regarding different bond transactions or other actions taken either by the bond issuer or the bondholder.
Every company has a general duty to report any important information to investors, the Finance Ministry said.
In an effort to increase transparency for bondholders and for better risk assessment, the Finance Ministry decided to adopt changes to bond-disclosure regulations as recommended by the Israel Securities Authority. The recommendations must be approved by the Knesset Finance Committee before implementation.
"These changes are of high priority in light of the global financial crisis that is impacting the repayment capacity of corporations," the Finance Ministry said.
Under the new disclosure requirements, every company offering bonds to the public will have to publish a table of data on all outstanding bond issues, with details of redemption dates, value assets used as collateral and an assessment of the cash-flow situation for repayment capacity.
With regard to the cash-flow estimate, companies will have to provide an assessment for the next two years, including financial sources to cover repayment and any signs of trouble or difficulties they might encounter in repaying. In addition, bond issuers will have to include data on rates of interest and conversion conditions.
Bloomberg contributed to this report.