Even though the American stock markets are up by 20-40
percent this year, the Tel Aviv Stock Exchange (TASE) is up
more than 50 percent so far, and Israeli interest rates are
down almost 4 percent. These developments have combined to
attract a lot of new money into Israeli investments.
There has been a huge number of new stock and bond issues. A
total of NIS 9.3 billion ($2.1 billion) was raised in the
markets so far this year.
In addition, the government and the financial authorities are
trying to drive changes in Israeli financing. So far the
economy has been very dependent on bank financing, more so
than in countries like the US. In many instances where
American companies would issue public bonds to borrow money,
in Israel they borrow from banks. The government wants to
reduce the involvement of banks and make companies borrow
more on the shekel bond market. There has been a real
increase in corporate fundraising. The massive bond issues
along with sales of stakes by controlling shareholders signal
a sea change in the Israeli markets.
Since September alone, NIS 5.8 billion ($1.3 billion) has
been raised in corporate bonds, while controlling
shareholders have sold stock worth NIS 1.5 billion ($350
million). From the beginning of 2003, these controlling
shareholders have sold NIS 3.5 billion ($800 million) of
their shares.
There has been at least one new issue a day for the past few
weeks, and sales of stock worth tens of millions of shekels
have become a daily occurrence. Demand for these issues is
much greater than supply, and firms often increase the size
of the offer on the issue date. For example, Mekorot, the
water company, planned to raise NIS 300 million in an issue,
but sold NIS 600 million when it encountered tremendous
demand.
Ormat's institutional offering was subscribed to the tune of
NIS 500 million, with the issue closing at the maximum price.
Ormat raised NIS 300 million, instead of the originally
planned NIS 250 million. Subsidiaries of the IDB group
including Discount Investments, IDB Holdings and Azorim,
raised NIS 1.3 billion over the last four months. Since the
Ganden group took control, IDB has raised over NIS 2
billion.
Underwriters report that a large number of companies traded
on the stock market are preparing issues.
The State of Israel also sold stock, namely, Bezeq shares in
November for NIS 700 million. Demand for the offer was in the
billion-shekel range, and most of the stock was sold in the
end to foreign investors above the market price.
Alongside the drop in yields on government bonds, fears of a
financial crisis, which would lead to massive corporate
defaults, have disappeared. Institutions in the business
sector are searching for investments with higher returns.
The massive redemptions of the provident funds have stopped,
and mutual funds are raising billions of shekels a month.
This, along with the end-of-the year deposits, has added to
the funds available for investment.
In other news, a bill mandating pension insurance for all of
Israel's 2.2 million workers, the brainchild of Finance
Minister Binyamin Netanyahu and Knesset Finance Committee
Chairman Abraham Hirchson, is a far-reaching measure. It aims
to reduce gaps between various groups, retirees and active
workers, and workers with pensions, whether paid for by
themselves or employers, against those with none.
The law will not apply to those who don't work, meaning the
unemployed and home-makers. But the pension will give these
people another incentive to find work.
It is not clear if the mandatory pension law will take effect
in January 2005, as the bill proposes. Alongside the large
companies that support the legislation, there are tens of
thousands of small businesses that employ 5 to 20 workers
that can be expected to oppose it. Negotiations between the
Histadrut and the Coordinating Bureau of Economic
Organizations, aimed at reaching an agreement on mandatory
pensions, have repeatedly broken down in the face of
opposition from small businesses and the self-employed.
Small businesses say that if they are forced to pay 9.5
percent of workers' salaries for pension contributions, they
will have to fire workers to cover the additional costs.
Small businesses are certainly a major target of the intended
legislation. Employees of big organizations including
government ministries, local authorities, large supermarket
chains, hotels or companies that are members of the
Manufacturers' Association already have pension insurance,
while most employees of the large companies have managerial
insurance that includes retirement savings.
The goal of the law is to provide pension insurance for
600,000 (the Treasury's figure) to 1 million (the Histadrut's
figure) workers who now have none, and they are largely
minimum wage earners and those employed by small
businesses.
