Israel Matzav: First 'Palestinian' corporate bonds issued

Wednesday, May 11, 2011

First 'Palestinian' corporate bonds issued

PADICO - a private company that has investments that include ownership of the 'Palestinian Stock Exchange' and of the 'Palestinian' cellular telephone company PALTEL - has issued the first corporate bonds in 'Palestinian history.' The bond issue, which is denominated in $10,000 bonds, totals $70 million, with a $100,000 minimum purchase and a coupon of 5% for the first 30 months and then a floating rate of LIBOR + 2.5% for the remainder of their 5-year term. The bonds were privately placed and will not trade. The proceeds will be used for 'infrastructure projects.' It's only taken them 18 years to get to this point.

Masri told The Media Line that he expected most of the issue to be bought by Palestinian banks and other financial institutions, although some foreign investors were likely to subscribe as well to the issue. The bonds, which will not be listed nor traded on the Palestine exchange, will have a term of five year.

They will pay a fixed interest annual interest rate of 5% for the first 30 months and for the remainder of the term pay a variable rate of six-month of the U.S. London interbank offered rate (Libor) plus 2.5 percentage points. Investors will be required to buy a minimum of 10 of the bonds, which are priced at a par value of $10,000, Padico said.

Masri said he isn’t concerned that the PA will lose much of its international aid amid concerns by Israel and the US that money will go to Hamas, an Islamic movement designed a terrorist group by the US and European Union.

“National unity is a great step,” Masri said. “It will encourage investment. We are not worried about the cutting of aid because the [national unity] government will be a very friendly, good government that will [operate] in accordance with international law and United Nations resolutions.”

Padico, which was formed in 1993 shortly after Israel and the Palestinians signed the Oslo peace accords, said the bonds are the best financing option for the company’s medium- and long-term strategic projects. They will provide liquidity without the need to constantly recycle short- term bank loans while enabling it to pay consistent cash dividends.

To those of you not in the business world, this may sound impressive. It's not. It's a small issue and the interest rate is not that of a prime credit. It's a start. But somehow, I think they'd be better off not investing in projects like this one:

"We plan to open a big, five-star hotel in Gaza, a power plant and many other development projects in Gaza,” he said. “There is a lot to be done in Gaza, especially rebuilding what the Israeli army has destroyed.”

Just who do they think is going to stay in a five-star hotel in Gaza? The flotilla passengers? What is there to do in Gaza that is going to attract anyone? There's an Intercontinental Hotel in Bethlehem, where there are attractions, and I just went online and could have booked a room for tomorrow night for $140 - far less than a comparable hotel just a few minutes away in Jerusalem would have cost. How much do they think they can get for a night at a five-star hotel in Gaza? Better they should fix the lousy sewer system (which was not destroyed by the Israeli army) first: