Raising Debt In Israel

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Harry Paul
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1 Raising Debt In Israel Wellspring Capital From Thought to Execution September 2014

2 The Opportunity - Raising Debt In Israel High liquidity of the local investors and a strong preference for bonds Solid demand in large scales for unsecured rated bonds and a shortage of local issuers Rated unsecured corporate bonds are traded in a relatively low spread from government bonds Israeli market is accessible for relatively small companies enabling issuing bonds in an amount of ~ US$40 million and more Strong macro economics High perception for real estate in the US

3 Advantages of Issuing Bonds In Israel The local debt market interest rates are attractive for the relevant peer group, compared to the private alternative in the US, enabling raising subordinated debt in low interest rates. Bond s terms and structure in Israel are similar to a Mezzanine loan with lower interest rate. The issuing proceeds can be used for refinance other expensive debt or for new investments (e.g. buying out existing partners or investing in new assets) under the deed of trust terms and conditions. The Israeli market is considered as accommodating, especially with regards to the debt maturity and with relation to unsecured debt. The issuance of the first bond series in Israel creates a platform which enables companies to issue new debt or enlarge the current series in the framework of a few days. The bonds will be issued under a Limited Liability Company, a legal entity which has no recourse to shareholders in any default events.

4 Recommended Criteria For Issuing Bonds Issuer Size Operation Locations Relevant Ratio s for the Rating Process Issuance Rating Interest Rate Equity of over US$50m depending on the company s operations Strong preference for real estate companies with income producing assets in prime locations The Israeli market has a high perception for real estate in the US Debt to (1) NOI; (2) FFO; or (3) EBITDA EBITDA to Interest expenses Debt to (Debt + Equity) US$50m and more From BBB+ rating the higher the rating the lower the interest rate Based on the company s assets portfolio and the assumed rating

5 Listing in Israel Average debt raising process should take ~12-16 weeks in accordance with the following milestones: Approaching one of the local rating companies for rating the issued bonds Prepare an IFRS based financial reports Legal structure preparation Writing and filing an Israeli prospectus Conducting a comprehensive road show to local investors Issuing marketing documents to local investors Conducting negotiations with institutional investors regarding legal documents and debt terms Conducting a preliminary tender offer for institutional investors Conducting a public tender

The Legal Structure Preparation In order to issue bonds in Israel, the following legal preperation should be executed: Incorporation of a B.V.I. Limited Liability Company owned by Individual/individuals* New Co.

6 The Legal Structure Preparation In order to issue bonds in Israel, the following legal preperation should be executed: Incorporation of a B.V.I. Limited Liability Company owned by Individual/individuals* New Co. (B.V.I.) Cherry Picking of the new assets which will be transferred to the new company After the completion of the bond offering and in the same time, the Individual/individuals* will transfer his/their direct or indirect beneficial ownership interests in the real estate in New York to New Co. (B.V.I.)

7 Regulation Applying To Foreign Bonds Issuers See below some of the provisions of law applicable to foreign entities issuing bonds in Israel: Appointment of (1) external directors; (2) an audit committee; (3) an independent director; and (4) an internal auditor. Reporting: (1) publishing quarterly and annual IFRS based financial statements; (2) immediate reports regarding main events in the company's ongoing activity; etc. Bonds issued by the Company shall be issued in accordance with a deed of trust signed with a trustee. The deed of trust will include provisions regarding financial ratios e.g. coverage ratios, leverage restrictions, commitment to maintain a rating and other causes for immediate repayment etc. The trustee serves as the bond holders' representative. The Issuing company should have a registered office or a representative office in Israel, a local law firm and a local accountant firm.

8 An Overview Of The Israeli Market Wellspring Capital From Thought to Execution September 2014

9 Strong Macro Economics

High Liquidity of the Local Institutional Investors Institutional investors manage over US$405bn (~NIS1,420bn) as of 2014 and are expected to reach US$571bn (~NIS2,000bn) by 2020 ( ~57% of

10 High Liquidity of the Local Institutional Investors Institutional investors manage over US$405bn (~NIS1,420bn) as of 2014 and are expected to reach US$571bn (~NIS2,000bn) by 2020 ( ~57% of the total assets portfolio). Average monthly capital accumulation of US$3.2bn vs. new debt issuance of only US$830m creating an annual gap of ~US$38 bn -creating a need for new investments

11 Relatively low Government bonds Yield Low government bond yields over the last few years, the spread between Israel government bond yields and 10 year US bonds dropped dramatically from 3.29% to only 1.04% Local corporate bonds trade at a relatively low spreads over similar duration government bonds Source: TASE

The Local Bonds Market Israel has a very efficient bonds market with high trading volumes Corporate bonds are traded in relatively low spreads over equivalent duration of government bonds Ranking

12 The Local Bonds Market Israel has a very efficient bonds market with high trading volumes Corporate bonds are traded in relatively low spreads over equivalent duration of government bonds Ranking arbitrage opportunity -taking advantage of the rating gaps between Israel and the company s local country rating, i.e the rating gap between Israel and the US is five notches, meaning that a BBB company in the US will be rated as AAA in the local rating. Solid demands for long duration and unsecured bonds. The local market s high liquidity crates an opportunity for companies to issue unsecured bonds. Over 70% of the traded bonds were issued without any collaterals.

13 Size Advantages Size advantages a relatively small company in a foreign market (especially the North American markets) could be considered a large company in Israel. Over 40% of Tel Aviv 100 index companies have a market cap of below US$0.5bn. The average market cap of companies traded in the Real Estate 15 index (which is composed by Israel s leading real estate companies) is ~ US$1bn.

14 Samples Of Real Estate Related Bonds

Yaniv Bresler MBA, LLB (ISR), over 14 years of experience in Corporate Finance, fund raising, M&A, IPO's, RTO's in public and private companies from variant sectors in Israel, North

15 Wellspring Capital Founded by Yaniv Bresler and Yaniv Lubinski. Both partners bring to the table vast experience in the Israeli capital market and innovative thinking to solve your fund raising needs. Yaniv Bresler MBA, LLB (ISR), over 14 years of experience in Corporate Finance, fund raising, M&A, IPO's, RTO's in public and private companies from variant sectors in Israel, North America and Africa. Yaniv Lubinski MBA, CPA (ISR), over 14 years of experience in international financial management, investments and fund raising. Talent for creative thinking and a multidisciplinary approach in solving challenged situations. Contacts: ybresler@wellspringcapital.co.il Contacts: ylubin@wellspringcapital.co.il

Debt Market In Israel Brightman Almagor Zohar & Co.

Debt Market In Israel Brightman Almagor Zohar & Co. Debt Market In Israel The Opportunity There s a growing demand for corporate bonds of strong income-producing international companies in Israel. Yields: the very strong revival in the Bond market is mainly