Arison completed raising NIS2.5 billion in debt in a private bond placement

Sherry Arison

Sherry Arison

By Cillia Shani

Arison Holdings Ltd. just completed raising NIS2.5 billion (just over $683 hundred million at current rates) in debt in a private (i.e., non-tradable) bond placement.

This is one of the largest private debt transactions occurring in Israel in recent years, and it displays characteristics of funding means of control, whose main purpose, as far as Arison is concerned, is the refinancing of existing NIS1.5 billion (about $409 million) debt owed to financial institutions, mostly holders of Series A bonds privately issued in 2007, as well as re-cycling debt in the amount of NIS800 million (just over $215 million) owed to various Israeli banks.

As part of the proposed debt raising process, an offer was made to current bondholders to exchange their bonds for the the new bond series, most of whom responded positively to the proposal (the rest will be paid according to the original schedule). Arison Holdings has also changed the composition of the new debt, and now three Israeli banks, Discount, Mizrahi Tefahot and First International are part of the lending institutions’ consortium.  Until now each of the three banks provided credit separately. In this transaction thee would provide credit, of between NIS250-300 million ($68.3- $82 million), under the same terms as the institutional bondholders.

Arison holdings, managed by Efrat Peled, owns equity that constitutes about 60% of its balance sheet. The Company has no massive redemptions due in the near future and no write-offs affect the bondholders – as is the case with bonds issued by Israeli tycoons Nochi Dankner, Yitzhak Tshuva, Yossi Maiman, Ilan Ben Dov and others.

However, Arison Holdings was hurt by the fact that Hapoalim (a bank in which it owns a substantial share), like other banks in Israel, is not distributing dividends, used in the past by the company as its primary source of debt repayment; it is not clear when the bank would return to distributing dividends.

The cessation of dividends’ distribution is due to the requirements of the Bank of Israel (Israel’s central bank), according to which Hapoalim must, by the end of 2014, reach a capital adequacy ratio of 9% and increase it to 10% within two years thereafter.

Capital adequacy is the size and proper composition of a bank’s capital relative to its risk profile, while taking into consideration the management and control systems it has as well as the broader risk environment to which it is exposed. In order to strengthen the stability of the banks and safeguard the public’s deposits, regulatory authorities in each country have set a minimum level of capital banks are required to maintain in order to absorb losses that may be had if such risks were to be realized. Beyond the minimal level required, banks may be expected to hold additional capital to ensure that the level of capital at their disposal is compatible with the above-mentioned risk profile.

Calculation of capital requirements (i.e., capital adequacy) is determined by the Superintendant of Banks in accord with the Basel Committee’s international standards, on the basis of relevant analysis processes and ongoing monitoring of bank activities.

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