Israel's Bond Market Reopens to BVI Companies After Fraud Scandals
Translated & summarized from Calcalist by baba
Israel's bond market has seen its first issuance from a BVI-related company since May, following fraud scandals that halted such offerings. Strawberry Inc. raised NIS 52 million, signaling a potential reopening, though investor confidence remains fragile.
The story in 5 lines · by baba
- Strawberry Inc. raised NIS 52 million, ending a three-month halt for BVI companies in Israel's bond market.
- Major fraud scandals involving Simad and Kohan Properties eroded investor confidence.
- The market is now prioritizing established, supervised companies over new BVI entrants.
- Rebuilding trust in the BVI corporate bond market is expected to take considerable time.
- Three older BVI companies are currently facing financial difficulties and debt restructuring talks.
Israel's corporate bond market has seen its first issuance from a BVI (British Virgin Islands) related company since late May, when major fraud scandals involving Simad and Kohan Properties severely disrupted the market. Strawberry Inc., the parent company of BVI entity Strawberry Fields REIT Limited, successfully raised NIS 52 million this week. This marks the end of a three-month hiatus for BVI companies seeking debt financing in Tel Aviv, during which no such company managed to raise funds.
Prior to the scandals, BVI companies had raised NIS 6.5 billion in 18 bond issuances by early June. The Simad case involved the company's owners allegedly embezzling tens of millions of dollars from issuance proceeds, while Kohan Properties' controller was found to have used funds for personal assets. These events led to a significant loss of investor confidence, with one investment house executive stating the market had "simply closed" for new companies.
Despite Strawberry Inc.'s successful issuance, some market professionals remain cautious. Yair Drory, Deputy CEO of Investments at Alternative Investment House, noted that while the company is highly rated and established, demand was lower than expected, indicating that rebuilding trust will take time. He believes the market will now prioritize established, supervised companies over new entrants, especially given the high interest rates in the US.
Further complicating the situation, the controller of Kohan Properties was found to have withdrawn an additional $2.7 million beyond initial reports. He has since returned the funds, resigned as CEO, and lost signing authority. Additionally, three older BVI companies, De Zarasei, GFI, and De Lesser, are facing financial difficulties and are in discussions with bondholders regarding debt arrangements.
Industry experts suggest a shift in the types of companies likely to access the Israeli market. The recent events have highlighted the risks associated with BVI companies, including distance, lack of familiarity, and corporate structure issues. The market is now demanding higher yields and prioritizing well-established, transparent companies with strong corporate governance to restore confidence.
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