Mizrahi Tefahot Bank (TASE:MZTF) has raised only NIS 417 million in its offering of CoCo (contingent convertible) bonds. The target was to raise NIS 1 billion. The institutions that participated in the offering were Menorah Mivtachim Holdings Ltd. (TASE: MORA), Halman-Aldubi, and The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5). They will receive an interest rate 3% above the yield on government bonds.
It is believed that Mizrahi Tefahot will try to complete a further offering of CoCo bonds in the hundreds of millions of shekels in the coming weeks. This is at the same time as Bank Leumi (TASE: LUMI) intends to raise NIS 1 billion in a CoCo bond offering in a different format from that of Mizrahi Tefahot, one that includes a mechanism for conversion to equity instead of a "haircut".
Capital market sources said today that Mizrahi Tefahot's offering failed because many investors thought that the interest rate margin did not reflect the risk inherent in the product. Investors expected a margin nearer to 6%, and the sources said that at the current margin it was preferable to invest in Mizrahi Tefahot shares.
A CoCo bond is an instrument that is meant to contribute to the stability of banks that issue it, but is problematic for investors, because it allows for partial or full write-down of the principal of the bond in a time of crisis (a "haircut"). The conditions set by the Bank of Israel for insolvency of a CoCo bond are a situation in which the bank's capital adequacy ratio falls below 5% or in which the Supervisor of Banks decides that the principal should be written down.
Published by Globes [online], Israel business news - www.globes-online.com - on January 4, 2016
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