Israel, among other countries around the world, is affected by the current global credit crisis. While the Israeli banking sector has been less exposed to sub-prime mortgage risks, in the past months, they were forced to write off debts of foreign financial institutions in distress. Furthermore, all the Israeli banks are narrowing their credit policy and raising interest rates spreads, in spite of sharp government rate reductions by the Bank of Israel. A contradicting recent requirement by the Bank of Israel to raise capital ratios ahead of Basel II implementation at banks mean they have even less money to lend.
Companies are encountering difficulties in raising funds, as institutional credit is almost non-existent. Companies are faced with debt repayment under limited credit resources and are forced to rearrange debt with their shareholders and creditors. In light of the lack of credit resources, due to strict bank policies and low non-bank credit, the Israeli Ministry of Treasury announced that it would intervene in the Israeli economy, unveiling a plan to provide approx. 5B NIS in order to bolster the external credit market. The government plans to revive the alternatives to the traditional banking credit system and intents to encourage the establishment of funds in collaboration with the institutional market. This initiative is called “Manof”, the Hebrew word for crane – a vehicle to help ‘lift’ the credit market.
The government is running a tender among potential fund managers, to be the General Partner of its first such fund, in which the government will invest 500M NIS. The fund manager is expected to raise an additional investment of 1B to 1.5B NIS from Israeli institutions investors. The basis of competition between potential bidders for the management of the funds is the amount of money they can raise from institutional investors. The government will give investors preferential returns from the fund, and shield them from some of the downside risk by guaranteeing a 4% return up to the level of its own investment. The main business of the funds, as it is currently discussed by the government, will be investing in and funding of Israeli companies for debt restructuring and development of their businesses.
Several management teams are currently competing. Since the government wishes to avoid conflicts of interests with existing holders of corporate debt, it has stipulated the management companies must be newly formed, dedicated entities for the management of the funds, and has excluded all money managers and investment firms from participating.
Seven teams passed the initial tender screen. One leading group has emerged as a likely winner, although the final deadline for submitting the tenders is March 5th. Beresheet Group, is lead by Gabriel Perel a veteran executive of the Israeli financial sector. He was previously the vice chairman of Harel Insurance, before that Deputy CEO at Israel’s I.D.B Group, and before that CEO of Clal Finance. He has partnered with a multi disciplinary group of experts, which cover the skills and experiences required for such a daunting task as debottlenecking the corporate debt market. Dr. Mani Wasserman is the founders of one of Israel’s leading management consulting boutiques, specializing turn-around and special change of ownership situations. Ran Gorodezki was until recently the investment manager in Markstone, Israel’s largest PE fund. Before that he worked in leading finance positions at Partner, Israel’s largest wireless operator. He brings due diligence experience and structuring of complex equity and debt investments. Advocate Tsuriel Lavi is a partner at one of Israel’s leading law firms specializing in debt restructuring and loan work-out arrangements. Beresheet reached the highest level of commitments from institutions in the first stage of the tender. A second contender, likely to be a forerunner for further funds to be sponsored by the government is a group led by previous ministry of finance executives. Eyal Gabai was previously the head of Israel’s Government Company Authority, and later the MD in Israel of Babkock and Browne, the Australian PE firm. His partner, Ori Yogev was previously the Controller General of the state of Israel and later a private businessman. The team enjoys a very broad network of contacts within the government and the business community.
The scheme is intended to create liquidity for mostly healthy domestic companies caught in the debt squeeze, in order to help revive the stagnant debt market, and to help reduce layoffs and contraction in business activity. The innovative scheme has a chance to achieve this goal, and the domestic bond market has been responding positively to the launch, and the progression of this process. Lessons learned through this initiative may be later copies by other governments facing similar challenges.
