Bank Leumi's Innovative Move in the Global Market
Bank Leumi is making history by becoming the first bank in Israel to issue covered bonds to foreign investors. This pioneering financial strategy allows the bank to access significantly lower funding costs compared to traditional corporate bonds. Recently, it successfully raised approximately EUR 750 million through this innovative debt instrument, highlighting a strong demand of around EUR 4.6 billion from European investors.
Exceptional Ratings Achieved
The bonds issued come with a 5-year maturity and were offered at a margin of 0.68% with an annual interest rate of 3.197%. Notably, the series received an impressive AA- rating from Fitch and Aa3 from Moody's, translating to ratings that are notably higher than those of recent Israeli government bond issuances. This strong rating, along with a lower interest rate by 20 basis points, underscores the positive reception of Bank Leumi in international markets.
Strategic Leadership Behind the Issuance
The leadership team at Bank Leumi played a critical role in this groundbreaking issuance. Deputy CEO and Head of Capital Markets, Mr. Omer Ziv, alongside Ms. Nitzan Sandor, Head of the Legal Division, spearheaded the efforts to bring these covered bonds to market. Their guidance is paramount in realizing the bank’s strategy to diversify its funding sources and enhance its global reach, with prestigious institutions such as Barclays, JPMorgan, Goldman Sachs, and UBS underwriting the bonds.
The Mechanism of Covered Bonds Explained
Understanding what a covered bond entails is essential. These bonds are secured by a mortgage portfolio, ensuring that the payments to investors are reliably backed. This financial instrument has gained popularity in global markets, and Bank Leumi distinguishes itself as the first financial institution in Israel to issue such bonds for foreign investors. In a previous instance, in 2020, it was also noted as the first Israeli bank to issue debt to international investors.
Market Opportunities and Benefits
The covered bonds market is substantial, with estimates suggesting a total size of around EUR 3 trillion. By engaging in this issuance, Bank Leumi stands to reap multiple benefits. The bonds are supported by a stable pool of diversified underlying assets, which translates to reduced funding costs compared to conventional corporate bonds. Furthermore, the move targets a wider range of foreign investors in markets like Germany, France, and Switzerland, which previously had limited exposure to the Israeli banking system. For many institutional investors, these bonds offer a practical tool for managing debt portfolios and diversifying risks.
A Message from Leadership
Reflecting on this achievement, Mr. Hanan Friedman, CEO of Bank Leumi, expressed pride in the bank's role as a leader in the Israeli banking sector. He emphasized the significance of this issuance and the robust demand it attracted, stating, "The unique issuance we led, together with record demand and the impressive ratings we received from the world's leading rating agencies, is clear evidence that Leumi is regarded as Israel's leading bank also in the eyes of foreign investors. Covered bonds are one of the most important instruments in the global debt market, and I am proud that Leumi is the first Israeli bank to lead this important step of opening the Israeli market to such issuances."
Frequently Asked Questions
What are covered bonds?
Covered bonds are financial instruments backed by a mortgage portfolio, which secure the payments to investors.
Who issued the covered bonds?
Bank Leumi issued the covered bonds, becoming the first bank in Israel to do so for foreign investors.
What is the significance of the ratings received?
The bonds received high ratings, indicating a robust financial standing and confidence from global investors, being higher than Israeli government bond ratings.
What are the benefits of covered bonds for investors?
Covered bonds provide a safer investment option with lower risks and help diversify investment portfolios for institutional investors.
Which institutions underwrote the covered bonds?
The bond issuance was underwritten by major global banks including Barclays, JPMorgan, Goldman Sachs, and UBS.
