Bank Leumi has become the first bank in Israel to issue covered bonds abroad – a debt instrument with significantly lower funding costs than standard corporate bonds. A covered bond is a financial instrument in which the bond’s payments to investors are backed by a mortgage portfolio.
The bank raised approximately €750 million following the issuance of covered bonds to European investors, with record demand of approximately €4.6 billion. As part of the transaction, a 5-year bond series was issued with a 0.68% margin at an annual interest rate of 3.197%.
Bank Leumi gets rated as AA-
The series was rated AA- by Fitch and Aa3 by Moody’s – ratings that are two to four notches higher than those assigned to the State of Israel’s most recent bond issuance (Baa1 by Moody’s and A by Fitch), and at a lower interest rate by 20 points.
The transaction included underwriting by leading global financial institutions: Barclays, JPMorgan, Goldman Sachs, and UBS. The bonds are expected to be listed on the institutional trading platform of the Tel Aviv Stock Exchange. The global covered bonds market is vast, with an estimated size of approximately €3 trillion.
Hanan Friedman, CEO of Bank Leumi, said, “The unique issuance we led, together with record demand and the impressive ratings we received from the world’s leading rating agencies, is clear evidence that Leumi is regarded as Israel’s leading bank also in the eyes of foreign investors. Covered bonds are one of the most important instruments in the global debt market, and I am proud that Leumi is the first Israeli bank to lead this important step of opening the Israeli market to such issuances.”