Dorit Salinger 311.
(photo credit: Courtesy)
Let’s start with the good news: In 2010 there has been a drastic reduction in
the rate of company insolvencies. According to figures from international rating
agency Standard & Poor’s, the insolvency rate in the United States in the
first three quarters of the year was just 4 percent, compared with 11% in 2009.
Furthermore, S&P predicts that the insolvency rate will continue to fall in
the US, to 2% next year, or 4.5% in the worst case.
In Israel, too, there
has been a marked fall in the number of companies seeking debt arrangements this
year. Last year it seemed as if every week another company announced it would
not honor its commitments; for example, Africa-Israel and Zim.
year you could count on your fingers the number of companies that have sought
If everything is so good, where’s the problem?
According to S&P, the improvement we are seeing is only
“All in all, most of the problems have simply been pushed
back,” S&P Maalot CEO Dorit Salinger told Globes in a recent
Globes: What does that mean? Salinger: “Thanks to low interest
rates, the appetite for risk and the high level of liquidity in the market,
companies have managed to raise money from the market and roll loans back, which
simply means that the day of reckoning has been postponed.
is whether the current situation of a very liquid market and investor appetite
for risk will continue. It is by no means certain that that is what will happen,
and then companies are again liable to have problems recycling
S&P believes that the sharp fall in the rate of insolvency is
not a result of real recovery in the position of the companies.
no substantial improvement in the operations of companies at high risk, or real
treatment of their leverage levels,” Salinger says.
The effect of the
global economic crisis in Israel was felt mainly in corporate bonds. Bonds fell
sharply during the crisis, and companies had to ask for debt arrangements. As a
result of the crisis, the Hodek Committee was set up to set rules for
institutions investing in corporate bonds.
However, despite the trauma
that the Israeli market underwent, Salinger does not believe that the lessons
have been learned.
“When it comes to the appetite for risk, everything
that happened has been wiped from memory; people have forgotten that there was a
crisis,” she says.
In Israel, as in the US and Europe, the share money
raised by companies defined as high risk has grown considerably, she
But we are seeing mainly middleto high-rated companies leading the
“First of all, we are currently at the height of offerings by
unrated companies, amounting to 13% of money raised from January to November.
The previous record, in 2006, was 12%. Apart from that, even companies that have
supposedly high ratings are lower on the international rating scale, often with
ratings below speculative level.”
What is your view of the bond
offerings? “The offerings do not reflect the true level of the companies’ risk,
and investors ought to remember that when they buy bonds, they don’t buy them
for a year, and they should examine whether the risk is really correctly
Won’t the Hodek Committee improve the quality of offerings on
the market? “The Hodek Committee affects only those subject to it, which means
that mutual funds and nostro accounts are not affected.
which are subject to Hodek, will indeed be more selective, but as long as the
public continues to pour money into the funds, we will see a lot of unrated
offerings. Clearly, a situation like this cannot continue for long, and the
problem is that as soon as the trend reverses, bond prices will be hard hit,
because the institutions will not be able to buy the bonds that the funds sell,
since they do not meet the Hodek rules.”