The Disengagement Dividend


Brightened peace prospects are putting smiles on Israel’s financial markets.

In the wake of Israel’s withdrawal from the Gaza Strip, investor confidence in Israel is up, sparking such a demand for an Israeli bond offering in Europe last week that Israel increased the size of the bond and reduced the interest rate.

Zvi Chalamish, Israelís newly appointed chief fiscal officer for North America, said the "new economic and political situation" in Israel helped to make Israel "very attractive" and to improve the rating of its offering. The offering was rated "A2" by Moody’s Investors Service Inc. and "A-" by both Standard & Poor’s Corp. and Fitch Ratings. Rating services generally rate most bond offers in the Middle East as below investment grade.

Chalamish, who was in New York recently, said the prediction of Federal Reserve Chairman Alan Greenspan that interest rates will go down as a country’s stock exchange goes up has certainly applied to Israel.

"The Israeli government went to Europe to sell bonds and it thought it would sell a total of 400 million euros," he said. "But there was a demand for more than four billion euros and so we decided to sell 750 million euros worth: and at a lower rate of interest than we had planned in the beginning."

He said the next time Israel has another bond offering will be in early 2006. He said the offering will be made to American investors and that it will total about $500 million. According to Dow Jones News Service, Yaron Zelekha, Israel’s accountant general, hinted at an investor luncheon in London last week that Israel plans future offerings to the euro-denominated market.

"For us, a major success of the transaction was that it reversed the idea that the euro market is too expensive for Israel." Zelekha said.

The news service quoted Achim Linsenmaier, vice president on the liquid credit syndicate at Deutsche Bank, saying: "Investors now feel much more comfortable with the geopolitical and economic situation in Israel. An improved prospect for peace is anticipated after the withdrawal from Gaza."