Israeli Real Estate Firms Issue Bonds for Debt Refinancing

A wave of Israeli real estate developers, primarily mid-to-small cap entities, are turning to the Tel Aviv debt market to refinance expensive loans and secure capital for ongoing projects. This trend highlights a strategic pivot for companies seeking to alleviate immediate financial pressures and restructure their balance sheets amidst evolving market conditions.

Prominent among these is Barclays Hotels, controlled by businessman Moty Green. The company is aiming to raise approximately 400 million shekels through a bond issuance, with interest rates capped at 5%. The primary objective is to settle substantial bank and non-bank loans that are nearing maturity. These existing obligations are often secured by personal guarantees from the controlling shareholder, underscoring the urgency of the refinancing effort.

Barclays Hotels is developing the ambitious 'Atlantis City' complex in the Dead Sea region, a project slated to encompass 110,000 square meters of built space. This development includes 400 suites, extensive retail areas, and a convention center designed to accommodate over 4,000 attendees. The capital raised from the bond offering is earmarked to address several pressing debt repayments, including a nearly 98 million shekel loan from Bank Mizrahi Tefahot due imminently, and a 38 million shekel facility from Bank Hapoalim with a repayment deadline in less than four months. Additionally, a 5 million shekel loan from non-bank lender Credit 360 at a 9% interest rate is also on the repayment list.

Further illustrating this debt market activity is Amim Yizum, an urban renewal developer co-controlled by real estate entrepreneurs Aharon Marzbach, Netanel (Nani) Stern, and Nir Yehia. Amim Yizum is seeking to raise around 175 million shekels in bonds to replace existing high-interest loans. The company is currently managing projects with 901 housing units under construction and an additional 710 units in the planning stages. The funds are intended to prepay loans from the non-bank credit provider Manif, which carry an average interest rate of approximately 13.5%. For instance, a 32 million shekel loan for the first phase of its 'Givat HaShlva' project in Givat Ze'ev bears an interest rate of Prime plus 8.5%, equating to 13.75%.

These companies, like many other mid-to-small sized real estate developers, are navigating significant working capital deficits and negative cash flows from operations. Barclays Hotels reported a working capital deficit of approximately 90 million shekels, while Amim Yizum faces a deficit of around 240 million shekels and negative operating cash flow of roughly 125 million shekels. Despite these operational challenges, both companies have reported substantial net profits in their latest financial statements, largely driven by revaluation gains on their development projects rather than operational earnings.

The influx of real estate firms into the debt market underscores a broader trend of companies seeking to optimize their capital structures. While the equity markets have seen a surge of diverse companies, the debt market appears to be a crucial avenue for real estate players to manage immediate liquidity needs and reduce financing costs. This strategy allows them to continue project development while navigating the complexities of the current economic climate.