Israel Dusts Off Another Crisis Tool to Aid Virus-Hit Companies

(Bloomberg) --

Israeli officials, going back to their 2008 global crisis toolkit, are exploring the option of pooling public and private money to help companies hurt by the coronavirus pandemic.

The fund would be worth about 6 billion shekels ($1.6 billion), with roughly a fourth coming from the government and the rest put up by private investors, according to three people familiar with the matter, who asked for anonymity because the discussions aren’t public. The goal would be to assist domestic companies -- particularly with refinancing -- possibly by buying their bonds in the secondary market, one of the people said.

A decision to proceed could hinge on whether officials assess that there’s a need to whet appetite for corporate bonds, whose yields have risen during the virus outbreak, making it harder for struggling companies to raise new money. The fund’s impact could be amplified through leverage, two of the people said.

Daily turnover in the corporate bond market was an average $350 million over the past year, including exchange-traded funds, according to the Tel Aviv Stock Exchange.

While no final decision has been taken, the government has already earmarked its share of the funding and is drafting a tender for private investors, the people said. The fund would be modeled after similar ventures the government set up after the 2008 global financial crisis to boost the corporate credit market.

Then, the government helped set up three funds with private investors to buy corporate bonds and provide other forms of financing, according to Shuki Oren, a former Finance Ministry official who helped to oversee that program. The government took on greater risk, but also shared in the profits that each fund produced.

“It was an important injection to the market” that also changed the risk profile, he said by phone. “In today’s crisis, there is even more need.”

The government is also discussing setting up a separate fund to assist smaller high-tech companies with financing, according to two of the people.

A Finance Ministry spokeswoman didn’t respond to a request for comment.

Israel has so far approved an 80 billion-shekel aid package to help the local economy weather the health emergency. Unemployment has skyrocketed to roughly 25% from below 4% as officials imposed a near-shutdown to contain the virus outbreak.

Israel currently has more than 8,000 confirmed cases and 46 deaths.

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