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Israel Finally Gets $400 Million to Build Housing for Immigrants

April 10, 1991
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Wall Street investors sunk their teeth last week into $400 million worth of U.S. government-guaranteed securities that will finance the construction of housing and infrastructure for Soviet Jewish immigrants in Israel.

The Israeli government received the $400 million Tuesday, 10 months after President Bush signed into law a bill that promised U.S. guarantees for the securities.

In an unrelated development, Israel will shortly receive an additional $650 million of military aid from the United States, contained in a multibillion-dollar Operation Desert Storm emergency spending bill Bush signed last week.

Those investing in the $400 million were primarily large institutional investors, such as pension funds and insurance companies, said Frederick Khedouri, senior managing director at Bear Stearns and Co., a co-underwriter of the deal.

Investors bought securities that range in interest rates from 7.8 percent in the short term to 8.6 percent for 30-year investments.

“We think we got (the Israelis) as low a rate (of interest) as could have been gotten,” Khedouri said.

Magen Altuvia, assistant economics minister at the Israeli Embassy here, called the interest rate terms “very good. We see it as a basis for future transactions like this,” he said.

Altuvia predicted that the $400 million would be spent within two years. The money will pay for immigrant mortgages as well as for collateral for new public works projects.

Paul Berger, senior partner at Arnold and Porter, which represented Israel in the transaction, said the Jewish state will save $25 million to $50 million over what it would have had to pay in interest without U.S.-government backing.


Among the securities purchasers was New York’s pension fund, which made a $12 million investment, announced last week by City Comptroller Elizabeth Holtzman.

Despite the reputation that Israeli ventures have as being not especially lucrative, investors in the $400 million will receive a return of one-third of 1 percent higher than those who invested last week in 30-year U.S. Treasury Bonds.

The $400 million is a mere pittance compared to the $10 billion in U.S.-backed loan guarantees that Israeli officials have projected they will need from the United States to meet immigrant absorption needs over the next five years.

But under a bilateral agreement announced Feb. 20, Israel pledged not to ask Congress or Bush for any more loan guarantees until after Labor Day.

Altuvia said that in addition to the $10 billion in guarantees Israel wants from the United States over the next five years, it will seek $20 billion from Diaspora Jewish communities and $10 billion from European and other friendly nations.

The $400 million securities sale for Israel “is an extremely viable approach, and it could be duplicated,” Khedouri said. So long as future proposed loans to Israel are backed by the U.S. government, the size of such loans “would not be a problem” for attracting investors, he said.

The sale comes three years after Israel restructured $5.5 billion in foreign military sales debt to the U.S. government under a plan pushed through Congress by Sens. Daniel Inouye (D-Hawaii) and Robert Kasten (R-Wis.).

Those debt securities sales were 90 percent guaranteed by the U.S. government, with four other countries also restructuring their debts: Greece, Jordan, Tunisia and Turkey.

The Israeli package dwarfs all other Wall Street sales of U.S.-backed securities for foreign governments, Khedouri said.

The State Department’s Agency for International Development, which is overseeing the $400 million in loans to Israel, has authority to issue other loans only up to a maximum of $25 million per country, he said.

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