Jerusalem, 29 February 2000

Bank of Israel: Israeli Companies Raised NIS 20 Billion in 1999

(Communicated by the Bank of Israel Spokesman)

The Bank of Israel today (Tuesday), 29.2.2000, reported that Israeli firms raised NIS 20 billion in capital locally and abroad in 1999 – the largest figure in the past decade. NIS 6 billion was raised in 1990. While in 1990, 90% of capital was raised locally, by 1999, 67% of capital was raised abroad.

The Bank of Israel’s Monetary Department also states that the weight of private securities in raising capital varied between 0-21% during the 1990s. It seems that this method of raising capital is not attractive for companies, in part due to the lack of an adequate sub-market for securities in general and private securities in particular because of tax bias and slow reform of Israel’s securities law and financial services. The fact that pension funds hardly operate in this market also limits its scope. Pension funds enjoy special guarantees and rates for investing in government bonds. Pension funds are a significant source of capital for companies abroad.

The dramatic rise in capital raised abroad – to NIS 14 billion in 1999 – is due in great part to technological changes in the past decade, especially in the high-tech field, internet and software and the emergence of Israeli firms on stock exchanges abroad, mainly NASDAQ, in the past four years. Most Israeli companies in this field are start-ups and have preferred to raise capital directly abroad, without any connection to the Tel Aviv Stock Exchange, because they can enjoy a greater issue abroad at higher prices than in Israel, based on their potential future earnings, and because they enjoy greater exposure to potential investors abroad. Most of these new companies are traded only abroad.

In addition to the above mentioned companies, there are several firms listed abroad and therefore defined as "foreign residents" even though most of the operations and employees are in Israel. Such firms raised NIS 6 billion abroad in 1999 – a figure which is not included in the data on capital raised by Israeli companies.

Thanks to the surging American market and the stagnation of the TASE between 1994-98, many traditional sectors – especially commerce, construction and maintenance – went abroad to raise capital. These sums equal approximately NIS 600 million per annum.

Starting three years ago, Israeli high-tech companies began raising capital on the European markets as well. In 1999, they raised NIS 2 billion – one quarter of the total sum of capital raised abroad.