Outgoing Poalim IBI Underwriting and Investments Ltd. (TASE:PIU) CEO Erez Goldschmidt is expected to hold half the shares in the new underwriting company he is planning to found with Rafi Lipa and Gal Amit, two consultants for bond issues by foreign real estate companies, sources inform "Globes."
Lipa and Gal notified Poalim IBI last week that they planned to terminate their cooperation with the company. They are aiming at increasing their share of the general commissions enjoyed by consultants and underwrites in bond issues by US real estate developers.
Poalim IBI's share continued its slide today, bringing its losses to over 40% over the past four trading days since the expected exit of Lipa and Gal, who were responsible for bringing bond issues to the local capital market. Poalim IBI's market cap has now fallen to NIS 260 million.
Poalim IBI, in which IBI Investment has a 40.5% stake, while Bank Hapoalim (TASE: POLI) owns 18.9%, yesterday reported, "Erez Goldschmidt, CEO of our underwriting subsidiary, has announced his wish to terminate his agreement with it under an agreement for providing services between a company under his control and the subsidiary. In his announcement, Goldschmidt said that the agreement would be terminated as of November 20, 2017 (three months from today)."
The announcement is an important one for the underwriting company, due to Goldschmidt's importance in its business, following the severe blow to its business it is likely to suffer from the loss of its association with Lipa and Gal. A few days ago, Poalim IBI spelled out how important this business was to it, when it told the Tel Aviv Stock Exchange (TASE), "In the company's estimation, this occurrence is liable to materially affect the company's revenue from foreign real estate issues. The proportion of the company's revenue from these issues was 48% in 2016 and 63% in the first half of 2017."
Goldschmidt likely to be paid more
Lipa, Amit, and Goldschmidt are planning to found a new underwriting company in order to enjoy all of the consultation and underwriting commissions from the bond issues by foreign real estate companies on the Tel Aviv Stock Exchange (TASE). Up until now, Poalim IBI has taken one third to one half of these commissions, the total amount of which in recent years is estimated at over NIS 100 million.
Bond issues by foreign real estate companies in Tel Aviv have become a familiar phenomenon, yielding large commissions paid to the consultants and underwriters for the issues. These can exceed NIS 10 million for a single issue. These commissions are likely to amount to 4% or more of the amount raised. Before Lipa and Gal developed their "model," the local underwriting sector was used to underwriting commissions of only 0.2-0.3%.
To date, Lipa and Amit have brought 11 real estate companies operating in the US to the Tel Aviv Stock Exchange (TASE). These companies have raised over NIS 10 billion in debt, more than half of all the amount raised in bond issues on the TASE by foreign real estate companies in recent years. All of these issues were led by Poalim IBI.
The reason why Goldschmidt is leaving Poalim IBI is financial. His salary at Poalim IBI is currently limited to NIS 3.5 million a year, while he expects to get much more at the new underwriting company.
Lipa and Amit were able to connect the financing needs of US developers to the money managed by financial institutions in Israel, and were able to make the local market attractive to the real estate business of those developers. The developers found bond issues in Israel to be a wonderfully cheap financing alternative for their businesses, without having to provide any liens or guarantees, while taking advantage of the growing appetite for a return on the part of the financial institutions, which manage the public's savings.
Published by Globes [online], Israel Business News - www.globes-online.com - on August 21, 2017
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