Israel raises $6bn in borrowing bonanza to fund war against Hamas
Yield on debt is sharply higher than before the conflict began
“Israel has borrowed billions of dollars in recent weeks through privately negotiated deals to help fund its war against Hamas but is having to pay unusually high borrowing costs to get the deals over the line.
Since Hamas’s attack on October 7, Israel has raised more than $6bn from international debt investors. This has included $5.1bn across three new bond issues and six top-ups of existing dollar and euro-denominated bonds, and more than $1bn of fundraising through a US entity.
Investors said recent bonds had been issued in so-called private placements, a process through which the securities are not offered to the public market but instead sold to select investors.
The final pricing of the deals was not disclosed. However, bankers said they had priced in line with what they would expect from a public deal. Of two dollar bonds issued in November, Israel is paying coupons of 6.25 per cent and 6.5 per cent on bonds maturing in four and eight years’ time.
That is much higher than benchmark US Treasury yields, which ranged between 4.5 and 4.7 per cent when the bonds were issued. The deals were arranged by Goldman Sachs and Bank of America respectively.
In contrast, Israel issued a 2033 dollar bond in January with a coupon of 4.5 per cent, a much smaller spread — or gap — above Treasury yields, which were 3.6 per cent at the time.
Israel’s bond issuances to help fund the war are viewed as controversial in some parts of the debt market. While some investors, for instance in the US, have been keen to lend to the country following the October 7 attacks, others view the fundraising as anathema, given the humanitarian cost of Israel’s invasion of Gaza.
Investors and analysts noted that the bumper issuance was done through private placements rather than via open syndications and roadshows, which are usually carried out when new bonds are launched.
The reason for this, they said, could be to raise funds for the war effort quickly or without attracting unwanted attention, and could be a sign of how nervous some investors had grown about buying Israel’s debt.
“The reality is that, for a lot of investors, Israel at the moment carries too much ESG [environmental, social and governance] risk, especially for some emerging market investors where Israel is off benchmark,” said Thys Louw, emerging market debt portfolio manager at fund manager Ninety One.
Caution about Israel’s debt is reflected in the surge in the cost of insuring against default on its bonds. The spread on five-year credit default swaps has widened from under 60 basis points in early October to about 125 basis points on Friday. “