Treasury plan boosts stock market

The four-point plan will provide a total of NIS 11b. in capital and guarantees as well as tax exemptions for overseas investors.

Ronnie Bar On 88 248 (photo credit: Ariel Jerozolimski)
Ronnie Bar On 88 248
(photo credit: Ariel Jerozolimski)
Tel Aviv stocks jumped over 5 percent on Tuesday after the Treasury unveiled an NIS 11 billion financial plan to intervene in the capital markets. The plan, formulated jointly by the Finance Ministry, Bank of Israel and the Israel Securities Authority is aimed at bolstering the Israeli capital market and easing the credit crunch in an effort to help distressed companies survive and avert layoffs amid the global crisis. The Finance Ministry emphasized that the plan was supplemental to the NIS 22b economic stimulus package unveiled last week. The four-point plan will provide a total of NIS 11b. in capital and guarantees as well as tax exemptions for overseas investors to encourage foreign investment in the local market and boost liquidity. In a move to assist credit availability in the banking sector NIS 6b. will be allocated as guarantees to the banks for the raising of capital. "The announcement of this plan and the message it sends that the Finance Ministry will intervene was very important bringing confidence back into the market while sending the corporate bond market in particular to highs but also the share market," said Dan Laluz, chairman of Migdal Capital Markets. "The financial measures provide solutions to deal with the root of the problem in the capital market - the availability of credit, in particular in the non-banking sector," said the chairman of the Securities Authority, Prof. Zohar Goshen, at a press conference in Tel Aviv on Tuesday. "The measures provide the tools to help save good companies from complete collapse and thereby avert layoffs," Goshen said. "The Israeli banking sector is stable but in coming months we believe that the banks will be limited in the provision of credit to the business sector. The guarantees will make it easier for banks to provide credit or the oxygen needed for companies to boost businesses activity and investments. "The guarantees will be limited to ten years from the issue date, and will decrease 20% every two years," he said. The Tel Aviv-25 Index closed up 4.6% at 652.18 points, while the TA-100 Index leaped 5% ending the day at 580.48 points. The Banking Index added 7.3% as the Real Estate Index increased 4.3%. The Tel Bond 20 Index was up 3.2%. However, while markets surged in response to the news, the package was met with mixed reactions by capital market players. "The announcement of this plan and the message it sends that the Finance Ministry will intervene was very important in bringing confidence back into the market," Laluz said. "It [the crisis] does not resemble the crisis in the US," Tamir Fishman Investment House CEO Eldad Tamir said. "Here the crisis is 99% fear, lack of confidence and hysteria pushing the market down. This is the real problem that needs attention. "In a situation of fear the action needs to be clear, simple and immediate, while the Treasury's plan is complicated, small, partial and expensive." The Banking Association rebuffed that it was in very good shape in terms of capital and that the financial measures were needed to ease the credit crunch in the non-banking sector. "The Treasury's plan is not coming to solve capital problems in the banking sector, but to loosen the credit squeeze in the economy as a result of the freeze in the non-banking credit sector," said Moshe Perel, director of the Banking Association. A further NIS 5b. will be used to set up a number of investment funds in partnership with the pension institutions (provident funds, pension funds and managers' insurance providers) for the provision of non-bank credit and to deal with the refinancing of bonds. The establishment of the private investment funds will be on the basis of tenders. Out of the NIS 5b., NIS 3b. will be allocated with immediate effect and NIS 2b. in five months time. "The move is designed to support holders of corporate bonds when the bonds mature and to help assure companies' ability to meet their commitments," said Goshen. "The investment funds will either refinance corporate bonds and spread the payments out, or inject capital directly into troubled companies operating in Israel to help them through the crisis. "The investment fund administration, an independent body, will have a range of instruments to help bondholders wishing to reach debt settlements opposite companies to improve the latter's ability to repay their debts." Furthermore, the Finance Ministry announced that in support of the measures and to assist the credit markets, the government will bear the primary risk on the investment funds' losses, if any, and will share any profits, in a limited manner. "We will continue to use whatever tools necessary to deal with the impact of the global crisis on Israel's economy," said Finance Minister Ronnie Bar-On. Manufacturers Association of Israel President Shraga Brosh welcomed the financial plan but called upon the finance minister to summon the heads of the banks and business representatives to build a mechanism to ensure that the funds injected by the government are quickly passed over from the banks to the business sector. "The plan courageously addresses the central problems in the capital market and may serve to restore investor confidence in stability of the economy," said Brosh. "One of the main problems of the economy is credit availability." Meanwhile, the Histadrut Labor Federation on Tuesday officially approved a work dispute in the public sector in protest to the Treasury's refusal to provide a broad pension safety net. By law, the Histadrut can call a strike in two weeks. Wednesday evening, Bar-On is expected to meet with Prime Minister Ehud Olmert to receive the approval of an additional plan for a very limited pension safety net. The emerging pension safety plan, which is estimated to cost some NIS 10b., will apparently cover only a few tens of thousands of savers as it is expected to apply merely to pension savers aged 60 and older who earn less than twice the minimum wage, or about NIS 7,700 a month. The safety net will not be retroactive but will guarantee savings only from the date on which the Knesset approves it.