Over the past decade, U.S. developers have flocked to the Israeli bond market to obtain cheap financing for real estate projects — but that could change if new rules governing bonds are enacted.
The Israel Securities Authority has proposed changes that would affect how bonds issued by foreign companies, such as real estate firms, are rated, the Wall Street Journal reported.
If the proposed regulations are finalized, they would go into effect in January. U.S. companies and other foreign firms would still be able to issue bonds in Israel, but those bonds would likely not get an investment-grade rating. This would dissuade mutual funds from owning them, per the publication.
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Around 30 U.S. real estate firms have raised over $5.5 billion in the Israeli bond market in the past decade, according to the report. Developers like Related Companies, Silverstein Properties and Extell Development turned to the Israeli bond market since they can borrow at lower interest rates than in the U.S. These private firms are also not allowed to borrow in the U.S. bond market on the corporate level.
The proposed changes come in light of some well-known defaults among U.S. bond issuers, namely Yoel Goldman’s All Year Holdings, which has faced losses and foreclosures on parts of its sprawling Brooklyn rental portfolio. All Year’s bonds were delisted from the Tel Aviv Stock Exchange late last year.
The Authority said the company was under investigation.
[WSJ] — Keith Larsen