Firms win big on bonds they bought back

Investors panicked and sold bonds. The issuers bought them back, and profited.

Avi Shauly  29 Apr 10 15:14



They reported deteriorating business. Their bondholders sold the bonds at a loss. Now many public companies, that bought back their own bonds, have earned capital gains on the bond buy-backs they made. Many Tel Aviv Stock Exchange (TASE) listed companies, especially in real estate, exploited the market panic between late 2007 and early 2009, and are now reaping the rewards.



As investors fled, companies bought back bonds at fire-sale prices during the economic crisis, and are now selling the bonds on the market. The companies gained twice: first when they bought back the bonds at lower prices, and the second time when they resold them on the market after the bond yields fell.



Commenting on the deals, Ramco Investment House Ltd. said, "The distribution of bonds increases a company's debt. As such, we see the distribution of bonds bought by subsidiaries as an offering for all intents and purposes. The major difference between the distribution of bonds and the issuing of a new bond series is that issuing a new series usually improves the condition of the more veteran bondholders. This is because the funds for redeeming the old bonds comes from proceeds of new bond issues."




Noteworthy examples of this are Kardan NV (TASE: KRNV;AEX:KARD), which earlier this year distributed NIS 150 million worth of bonds; Industrial Buildings Corp. (TASE: IBLD), which sold NIS 95 million of its own bonds; and Isras Investment Co. (TASE: ISRS), which sold NIS 22 million.



Other companies include Ampal-American Israel Corporation (Nasdaq: AMPL; TASE:AMPL), Tao Tsuot Ltd. (TASE: TAO-M), and EZ Energy Ltd. (TASE:EZ), as well as small-cap companies like Alonei Meitar Ltd. (TASE:METR), and real estate firm Edri-El Holdings Ltd. (TASE: EDRL)



Ramco says, "Just as the buy-back of bonds by public companies during 2008 did not necessarily indicate the bottom, and bonds often continued to fall despite massive buy-backs, we believe that the distribution of bonds does not necessarily signify a change in direction in the bond market. The distribution of bonds can be considered as evidence that the corporate bond market is close to equilibrium, the point at which yields are good enough for investment and low enough to enable companies to raise capital."



Published by Globes [online], Israel business news - www.globes-online.com - on April 29, 2010
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