Al-Quds Bank: The bonds will increase investment and thus create new jobs.
Jordan Ahli Bank: PADICO broke the barrier of fear and continues its success.
Cairo Amman Bank: Bonds risk raised by PADICO is limited.
National Bank: PADICO bonds characterized by high liquidity.
Palestine Capital Market Authority: Not every contributing company can issue bonds.
Alhadath- Haider Douglas
Capital and banks experts unanimously agreed on the importance of the issuance of Palestine Development and Investment Company (PADICO) bonds worth $120 million. This has resulted in bolstering the national economy, and the establishment of more investment projects that will hire thousands of the unemployed.
For the second time in 5 years, the largest investment company in Palestine, which was founded two decades ago, succeeded in issuing bonds considered the largest of their kind in the Palestinian territories with the participation of 12 Palestinian and Arab banks. This proves the ability of the Palestinian investment environment to adapt to the political circumstances which it faces as a result of the complex reality actually caused by the Israeli occupation, including obstacles that target the independence of the Palestinian economy.
What Bonds Are
Bonds in general are a debt instrument used by governments or companies; to fund their projects, where they provide a good return to investors in exchange for an acceptable risk. The given return rate differs from one export company to another, depending on the company, its history and financial suitability. The required return from an investor in a large company will be less than a small company, because the risk in large companies is lower.
The bond is an instrument to prove that the owner of the bond has lent the issuer of the bond a certain amount of money, in exchange for a fixed return which undertakes the issuer to pay the bondholder specific interest in advance for the duration of the bond, and that the nominal value of the bond (the original) will be paid back when it becomes due. The bond is a debt instrument usually used by companies to finance projects. In essence, it is a financial paper of a certain value, one of the used investment vehicles. It may be traded or non-negotiable, as is the case for bonds issued by PADICO Holding (private placement), and usually the issuance of these bonds comes as a result of the desire of the company to get cash to finance projects or to expand certain projects or to promote investment in these projects.
PADICO'S New Bonds
The term of the new bonds ($120 million) is five years with an annual interest rate of 5%. The proceeds will be used to repay previous bonds ($85 million), and for the payment of short-term loans to banks, while the remaining (35 million dollars) will be used to finance projects in progress and new ones.
Chairman of PADICO's Board of Directors, Mr. Munib al-Masri, considered the issuance of these bonds as an important step to strengthen existing projects implemented by PADICO Holding. It will have a clear impact on servicing the Palestinian economy, and moving forward in the process of sustainable economic development led by PADICO.
On his part, Samir Hulileh, CEO of PADICO Holding, said that the issuance of PADICO Holding commercial bonds came from the fact that bonds are one of the best debt instruments that fit the nature of the company's investments, which are characterized by being medium to long term development projects that take quite some time until the start of achieving cash returns.
Mr. Samih Sbeih, Director General of al-Quds Bank, said that the bank's share of the PADICO bonds is small - $2 million, but still it has a great importance to the Bank's work on one level, and to the national economy on the other level.
Sbeih added: "We as a Palestinian national bank are concerned with investment in Palestine, and our first priority is investment in bonds and local businesses. This will have strong returns on the national economy, which is better than government bonds or any external device."
The Director General of al-Quds Bank, continues: "There were earlier issuances of bonds, which had many positives on the economic situation in Palestine internally, as bonds affect an increase in domestic investment and the establishment of projects. Thus, bonds will create jobs, reduce unemployment, and provide a good return for investors."
He stressed, that the bank's strategy is to invest in Palestine, saying that the uncertainty that characterizes the political scene will not deter our investment.
He added: "The Palestinian investor for the past long years, did not know what will happen in the future, therefore, to proceed with the development of the economy and investment in Palestine is what works, and we have become accustomed to the lack of an obvious political horizon. Therefore when we see small companies grow, and investors pump money into Palestine, this indicates that we have the will and desire of investment in the development of our economy, in spite of all the unclear political circumstances."
National Bank: PADICO bonds are a suitable investment opportunity
For his part, Director General of the National Bank, Ahmed Ragheb al-Hajj Hassan, says: "In the end, the issuance of bonds as a financial debt instrument is one of the ways used by governments and companies for long-term projects, which is the most appropriate alternatives to getting bank loans."
Hajj Hassan added: "This is the second time that PADICO Holding has issued bonds and the fourth time in Palestine. As a Palestinian bank, this is the third time we participate in these bonds. We have entered, participated and were part of PADICO's second issuance; because of our conviction that it is a suitable investment opportunity for the bank, with an appropriate return with a low risk level."
PADICO bond investment opportunity to achieve an adequate return
Hajj Hassan explained that the PADICO bond is an investment opportunity to achieve an adequate return. He added: "Bond issuance is a tool to finance large long-term projects - their return will take years to achieve, such as major agricultural or infrastructure projects, all of which do not find medium-term bank loans suitable. It is estimated that they will be repaid within 3-5 year. The projects undertaken by PADICO need many years, therefore resorting to the issuance of bonds is the most appropriate option, and their revenue will be positive on the Palestinian economy."
PADICO is a success story within the Palestinian Economy
Bank managers and investment experts considered PADICO company a success story within the Palestinian economy, especially as this is the second time it issues bonds with a larger value, and has many long-term investment projects.
According to the Director General of the Palestinian Capital Market Authority Buraq Nabulsi, the issuance of PADICO bonds for the second time in five years, and at a high value of $120 million, represents a success for the Palestinian economy.
He added: "This is not the first time that PADICO has issued bonds, as it issued bonds worth $85 million in 2011, which was considered a success not only for PADICO, but for the Palestinian economy, too. Both issuances (2011 and 2016) were marked by clarity, and did not face any problems or complications, since the two issuances were supervised by the Authority. Commitment to all regulators in the process of issuing bonds seemed clear, whether by companies, banks or institutions and within all relevant laws."
Jordan Ahli Bank: PADICO broke the Barrier of Fear
Treasury, Investment and Financial Institutions’ Director in the Jordan Ahli Bank, Dania Abu Hayyat, said: "By issuing bonds for the second time at a value of $120 million, i.e. $35 million for the first issuance, PADICO Holding has managed to break the barrier of fear, by guarantees and projects the company is working on."
Abu Hayyat added: "This is a new experience for us as a bank, and when the bonds were put up the first time we waited and watched to see where PADICO can reach, but this time we decided to buy bonds because we have seen their projects and plans. The company has long-term projects and need time to have a return. In addition to that, the PADICO experience has given us the confidence to invest in this bond, which will contribute to continuing our work, and the completion and development of projects in the pipeline."
PADICO succeeds in its first issuance as a result of hard work
Burak Nabulsi sees that the success of this process from beginning to end leaves a positive impact on the company on the one hand, and the underwriting entities that it owns on the other, as they got all their money with their benefits back.
Nabulsi said: "for the underwritten parties, by PADICO bonds, to get due financial returns with their benefits at the end of the receipt period of the bonds and in their exact time, left a positive impression about PADICO, and showed that it had issued these bonds in accordance with the assets, and without any problems or complications. He stressed that the Authority did not encounter any problems in restoring the company's money or benefits, and this success has enabled the company to issue bonds for the second time at a greater value than the first of $35 million."
Despite tough economic conditions, we have the will
Nabulsi indicates that the Palestinian economy is going through tough times as a result of the Israeli occupation, though everyone is convinced that we must work, serve our country and challenge all obstacles, stressing the possession of a complete ability and regulatory and technical elements for the success of this experiment, despite the difficult political and economic situation.
The national economy is the beneficiary
As for the importance and benefits of this investment initiative, the Cairo Amman Bank says: "The national economy is the most prominent of beneficiaries, as it will witness investment activities that contribute to creating jobs and new products and services in several sectors, such as energy, real estate and agriculture development, according to the PADICO work plan in the next phase."
The bank expressed its hope that the interest earned for our national economy and the exporting company are large, despite the limited revenues accruing to the underwriting parties, according to what the prospectus showed.
Cairo Amman Bank also confirmed that PADICO was able to achieve distinctive successes, and broke the barrier of fear for some people, especially after its commitment to all legal requirements and success to fulfill their obligations in the first issue of bonds.
He added: "This is observed in the initiative by many of the subscribing entities to increase the value of their subscriptions in the second issuance in comparison to the level at which they subscribed in the first issuance, including the Cairo Amman Bank. The value of its subscription rose to US $5 million from what it was in the previous issuance, pointing out that the Bank's share in this issuance is 30 bonds worth US $15 million of the total value of subscribed bonds.
Bond issuance is not an easy task for both companies
Buraq Nabulsi believed that bond issuance is not easy, and any contributing company cannot issue bonds unless it has a distinctive financial record and performance as PADICO Holding does, which enables the company to convince individuals who will buy these bonds that they can repay.
He added that bond issuance offers an important benefit for companies, especially if they have long-term investments such as PADICO, like the Jericho Gate project, Nakheel project, or Power Generation project, which are long-term investment operations, and reliance on bank loans to finance these investment operations is inappropriate as they are a long-term investment. Therefore, issuance of these bonds was important to give the company a long-term financing tool, through which it can repay the bonds over a long period.
For his part, Director General of the Capital Market Authority said, "Bond issuance has large economic benefits which are important for the Palestinian financial markets. We hope something will be done to facilitate the issuance of bonds and thus invest more money in the frozen land and real estate sector, thus leading to the launch of more projects which will open work opportunities for the unemployed and reduce the unemployment rate to serve the citizen and the Palestinian economy."
Issuing bonds involves a risk like any investment
According to the lawyer Haitham Al Zoubi, legal adviser to PADICO, the issuance of these bonds involves a degree of risk, considering that underwriting bonds is like any other investment, and this can be seen in the prospectus. For example, there are risks such as known credit, liquidity, low price exchange, and business seasonal risks, and there are political, economic and tax considerations resulting from those facts. We find that the prospectus is clear in this regard, it stipulates that the company does not guarantee assumptions upon which the prospectus is based due to the factors of risk, which could make actual results different from the outlook included in the bulletin. But the prospectus shows that the risks illustrated clearly and manifestly do not represent all known or potential risks. Such explanations are found in leaflets for bonds issuance, and we find that the prospectus in its prelude has indicated that the investor has to study the information carefully before deciding to invest in bonds in light of the circumstances of each investor and objectives of his investment; taking into account all the conditions and investment provisions contained therein. Indeed, the prospectus requires the underwriter to studying the investment itself, or through his advisers to submit to the IPO, while being aware of his order. To summarize, there is no investment without any risk, usually investors consider that investment in the bond carries less risk than direct investment in the issuing company.
Investment considerations and risks associated with bonds
Regarding the investment considerations and risks associated with bonds, Abu Hayyat of Jordan Ahli Bank says: "We understand all the types of risks that may result from investing in these bonds - they are long-term duration bonds, 5-year non-negotiable in any financial market – whether it were risks related directly to the investment in these sectors, or as a result of economic considerations and political volatility, especially related to the occupation and internal divisions, which may fundamentally and materially affect the company's performance."
Abu Hayyat adds: "There is no safe investment in the current circumstances, but it is our responsibility as Jordan Ahli Bank to work with Palestinian resources. We are committed to do our duty by investing in Palestine, and supporting Palestinian companies in order to achieve a better future for the economy, and for all our Palestinian people. We are part and parcel of the this impregnable body, which imposes over all the people to be one, unite, and achieve peace and freedom for all Palestinian citizens living on this earth."
On his part, Buraq Nabulsi says: "We cannot say that there is a risk in the literal sense of the risk, because every financial transaction, whether issuing stocks, bonds and any bank financial transactions, or any process related to financial affairs and others are risky; however, the risk ratio is calculated and studied."
Nabulsi added: "Risk ratio is measured by the company and the banks and can be identified through analysis, research, studies and investments departments, so they are risks calculated by the company, and PADICO has a great qualified and trained staff , who study the risks reflecting on them or on the Palestinian economy. So a bond holder can determine an acceptable risk ratio in line with his financial position."
Cairo Amman Bank: The risk of bonds issued by PADICO are limited
The Cairo Amman Bank explained that "in spite of the multiplicity of risks involved in investing in the national economy, for various reasons that are well known to everyone, the risks associated with investing in bonds issued by PADICO are calculated and acceptable. We believe that the multiplicity and diversity of PADICO initiatives in the development of the national economy are bound to limit some of the risks, and enhance our confidence in their ability to overcome them. In addition, those bonds are assured with acceptable guarantees."
PADICO bonds with high liquidity
Director General of the National Bank refers that guarantees given by PADICO are large, and its bonds have a high liquidity in the financial market. The participants in the underwriting of these bonds did not worry, particularly that the first bonds were fully covered so the second issuance was fully accepted, due to the guarantees quality and features.
PADICO bonds - guarantees of a credit financial nature
On the legal guarantees provided by the company for these bonds, Zoubi said that PADICO provided guarantees for bond holders, like any other borrowing process.
He added: "However, the topic of what the guarantees are is of a fiduciary financial nature, and not of a legal nature. But the guarantees, their quality and adequacy are estimated by the investor in bonds, based on the study in advance. It should be noted that the bond owners in the case of PADICO, are banks and financial institutions, thus they are of specialized awareness of financial ratios worth guarantees provided compared with the value of the bond and functional equations that are taken into account in this regard."
The conditions necessary for the issuance of bonds is sufficient to preserve the rights of bondholders
The attorney Zoubi explained that laws and regulations addressed in detail the necessary conditions for the issuance of bonds, such as the approval of the extraordinary General Assembly of the issuing company. In addition to that there is a prospectus that includes audited financial statements for PADICO, the director of the issuance, custodian, and other detailed legal requirements required by the Laws and regulations.
Zoubi continued: "The Securities Law No. 12 of 2004 addressed briefly the subject of the bonds loan in Chapter VII, as the Capital Market Authority issued special instructions in this regard in 2008. A detailed system of the Authority was released regarding the bond issue, as there are additional contractual conditions laid down by the IPO application that is provided by each investor, which also shows the additional terms and conditions on which investment in bonds are based."
Why did banks and financial institutions participate in underwriting PADICO Bonds
Treasury director of investments and financial institutions in the Jordan Ahli Bank Dania Abu Hayyat, said that - PADICO is the holding company that owns a lot of vital companies that operate in different economic sectors in Palestine. In addition to its contribution to many of the allied companies, it significantly contributes to the Palestinian economy through the huge dynamic long-term projects distributed within several vital sectors of the economy, it has a strong capital as the property rights of the company as of 31.12.2015 amounted to $545 million, of which included a paid up capital of $250 million dollars.
Abu Hayyat adds: "In the case of PADICO, issued bonds are rated as an excellent debt on the company, and a priority on shareholders' equity. In addition, the issued bonds are guaranteed by first-class mortgages on the shares of the Palestinian Telecommunications Company, Inc., Palestine Real Estate Investment Company, Inc., and Palestine Industrial Investment, so the market value of these shares won't be less than 130% of the value of the issued bonds. The Palestine Telecommunications Company is considered the only company in Palestine working in the field of terrestrial communications that achieves good revenues annually."
Abu Hayyat mentioned that interest on the bonds is good and acceptable, compared with the levels of prevailing market interest rate. The income statements of the issuing company show stability as an acceptable profit margin has been achieved in the last five years, in addition to expectations of good growth rates over the next five years.
Our goal is to promote the economic and community development wheel
In turn, the regional director of the Cairo Amman Bank , Joseph Nisnas, stressed that the Bank's participation in this investment initiative consecrates the institutional values of the bank, which are seeking to achieve and promote growth at various levels. Our motto is "Together we Grow," carries many connotations, including contributing to advancing economic and community development. The successes achieved by PADICO throughout 23 years, have formed an encouraging element and a motivation to participate in this development effort and a translation of our confidence in its ability to achieve more successes."
PADICO projects are a strategy and focus on diversity
Treasury director at Jordan Ahli Bank Dania Abu Hayyat explained that PADICO adopts a strategy based on the diversification of its investments to include different vital economic sectors in Palestine such as the services sector, real estate development, tourism, industry, agriculture, infrastructure, environment and other economic sectors.
Abu Hayyat adds: "The most important motives for Jordan Ahli Bank to enter and invest in this bond is its desire to contribute to the achievement of economic development, and to support and strengthen the Palestinian economy by underwriting listed bonds, in parallel with achieving meaningful returns of these bonds, because of their advancement of the Palestinian economy especially as they are concentrated in the areas of environment and infrastructure sectors.
We must have a role in building the Palestinian economy
The Treasury director of investments and financial institutions in the Jordan Ahli Bank confirmed that foreign banks operating in Palestine should have a role in building the national economy and development in Palestinian society, especially since these deposits have been placed on the table by Palestinian investors.
Abu Hayyat added: "As a Treasury Director I think our long-term investments should be in Palestinian holding companies such as PADICO, which is a strong company and has long-term projects in various Palestinian areas. Ultimately, this matter will have positive returns for everyone - on the Jordanian and Palestinian economies, and the Jordan Ahli Bank."
The legal framework for the issuance of bonds in Palestine have evolved
With respect to the adequacy of laws and regulations governing the process of issuing bonds, the lawyer Haitham Al Zoubi (legal advisor to PADICO) considered that bonds experience in Palestine is a modern experience and regulating its legal framework is evolving. He added: "If the currently available legal framework addresses the basics and gives an essential role to the capital market Authority, through practical application by the legal system in the process of issuing, bonds can be developed and harmonized. The most important part which must be developed is to address the many types and new forms of bonds, such as convertible bonds, Islamic financial products bonds and other items."
The need for a complementary role between the Capital Market Authority and the Ministry of Economy
Zoubi stressed that there should be integration in the role of the Capital Market Authority and the Palestinian Ministry of National Economy, so there won't be duplication of references, which leads to fatigued exporting companies, especially in the bonds offered to the public.
He said, "by virtue of our experience, the presence of a unified reference of any oversight process is easier for the investor and makes things more efficient. The new draft of the Palestinian Companies Act shall be the appropriate place for the unification of these references to make them more regular, because the valid Companies Act was enacted in 1964, while the Securities Act was passed in 2004. During this period, commercial and credit processes have evolved substantially, making the harmonization of legislation necessary to make the overall investment more attractive and s