Published On: Sun, Dec 28th, 2014

Azrieli Group Mulls up to 256 Million Debt Issue


Its quality assets and low leverage have given Azrieli Group an AA debt rating.

Azrieli Towers in Tel Aviv / photo source Dr. Avishai Teicher Pikiwiki Israel

Azrieli Group Ltd. (TASE: AZRG), Israel’s leading real estate company, is considering a primary public bond issue as one possible method of obtaining current financing for its activities, the company today reported to the TASE. At the same time, the Group emphasized that its board of directors had not yet officially decided on a public bond issue. Underwriting market sources predict that the company is likely to raise $128.2 million-$256.4 million initially.

Azrieli Group, controlled by the heirs of David Azrieli, held its IPO in June 2010, and has considered also issuing debt to the public several times since. Nevertheless, the company has apparently so far preferred to finance its activity through bank loans and direct financing from financial institutions.

Last year, for example, the company raised $123 million in an offering of marketable securities to investment institutions. Its quality assets and low leverage – a ratio of only 24% between net debt and total assets at the end of the third quarter of 2014 – have given Azrieli Group a high AA debt rating.

Azrieli Group’s debt totals $1.3 billion, while its assets total $5.48 billion. Its high rating enables the company to raise bonds with a medium-to-long-term duration and a lower spread than government bonds with the same rating, while the low yields in the capital market are of great weight in deciding whether to raise large amounts of bonds now, which means reducing the company’s finance expenses.

 

Meetings with underwriters have begun

Market sources believe that investors are likely to demand from the company an interest rate that will reflect an addition of 100-130 basis points to the yield on government bonds. For example, if a Shachar fixed-interest government shekel bond with a duration of six years is currently traded at a an annual yield to maturity of 2.3%, the corresponding Azrieli Group bond will be issued to bondholders with an interest rate of 3.3-3.6%.

On the other hand, if Azrieli Group chooses to issue index-linked bonds, then assuming that the duration is six years, the fixed interest component will probably be 1.4-1.7%. According to the same sources, senior Azrieli Group executives have already begun meeting with underwriters in preparation for a possible issue.

The background to the issue is the large debt repayments due from Azrieli Group in the coming year. Between October 2014 and September 2015, the company will have to repay $241 million to institutional entities and $117 million to the banks. Among other things, Canit Hashalom Investments, an Azrieli Group subsidiary, will repay a bond series issued to institutional entities in 2005 by the end of June.

Published by Globes [online], Israel business news – www.globes-online.com

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