BVI Bond Market Breaks Three-Month Freeze with Strawberry Inc. Issuance
After a wave of fraud and financial scandals shook BVI debt issuances in Israel, the market faced a three-month freeze. Strawberry Inc. broke the hiatus with a 52 million shekel raise, but analysts warn that restoring investor trust will take a long time.
After a boom lasting about two and a half years, the BVI debt issuance model in Israel suffered a severe shock at the end of May. The fraud exposure at Simad, a company operating US summer camps, where the owners pocketed tens of millions of dollars from the issuance proceeds, followed shortly by the discovery that the controlling shareholder of another BVI firm, Cohan Properties, used funds from the issuance for other properties he owned, triggered harsh market reactions. An institutional source at one of the investment houses that participated in both issuances told Calcalist at the time that "after what happened, in the coming months there is no point in bringing new companies. The market is simply closed," adding that "I will not give a shekel to such a company without someone of our own serving on the board to watch the cash register."
Indeed, while from the beginning of the year until early June BVI companies completed 18 bond issuances, raising 6.5 billion shekels (following raises of 9.8 billion shekels in 2025 and 8.4 billion in 2024), since then and until this week, for more than three months, no BVI company raised debt. The company that broke the issuance freeze, Strawberry Inc., is one of the veteran BVI firms that issued bonds in Tel Aviv in 2015. The company leases real estate used as nursing facilities and senior housing institutions for the elderly population in the US, and this week raised 52 million shekels in its issuance. Its bond series still in circulation trade at a single-digit yield, reflecting market confidence in the company's ability to repay them.
"It will take time to restore trust"
However, Yair Drori, deputy CEO of investments at Alternative Investment House, does not view Strawberry's issuance as a positive sign. "The issuance was completed indeed, but this is a high-rated, veteran, and well-known company, and yet the demand in its issuance was low, raising less than it expected and less than a comparable Israeli company would have raised. This shows that trust will take a lot longer to restore," he said. He added that "the market is frozen and it will be difficult for new companies to raise capital. In contrast, the market will give credit to veteran companies. The incident with Simad caused the market to prioritize companies that are already supervised. Since reality proved that unsuitable companies lacking internal control entered here, allowing themselves to behave in a way that an Israeli company supervised by the Israel Securities Authority would never permit itself."
Drori noted that high interest rates and yields that remain high in the US also constitute a warning sign for Israeli investors when evaluating foreign real estate companies seeking to raise debt here. A source at another investment house also addressed the trust issue, noting that "although the Simad incident probably ended positively for the holders, from my perspective as an investor, the realization that one cannot rely on the company's reports leads to a very bad situation. Therefore, investors are on the sidelines waiting." That positive conclusion refers to the success of the trustees and managers appointed after the affair erupted to contract deals for realizing the company's asset portfolio, in an amount that will allow the repayment of debt to bondholders. This came after it was revealed that Simad's controlling shareholders, brothers Michael and David Chabsels, took about 100 million shekels from the issuance proceeds.
"A hammer struck the BVI market"
Yaniv Seilan, deputy CEO at IBI Underwriting, explained in a conversation with Calcalist that "regarding new issuers, a change is expected in the type of companies that may reach the market. What happened over the past year was like a hammer that struck the BVI market and led it to a tailspin. The market knew and understood that there is risk in BVI companies, both because of distance and lack of familiarity, and because of their corporate structure and conduct, as many of them were private or family-owned companies that struggled to adapt to the requirements of a public company. But this risk was priced into a high yield demanded by institutional entities."
According to him, "the demand today is to invest only in issuances by established, large, and well-known companies, ones that will not have complications regarding corporate governance and problematic conduct, but rather companies that know how to operate as public companies from the outset. The problem is that while for small US companies the Israeli market is very attractive because they do not have many other options to raise relatively cheap debt, larger companies have less need for the opportunities the Israeli bond market offers them, as they are strong enough to secure other alternatives."
While a positive resolution is emerging regarding Simad, it was revealed yesterday regarding Cohan that the controlling shareholder withdrew additional funds beyond those originally reported, totaling $2.7 million. Consequently, he was required to return them, which he did, and he also ended his role as CEO of the company while his signature rights on company accounts were revoked. Alongside Simad and Cohan, which are relatively new BVI companies that raised capital in Tel Aviv for the first time in the past year, three more veteran BVI companies—De Zarasai, GFI, and De Lesser—have run into difficulties due to their financial status and the state of their assets, and are required to hold talks with bondholders regarding reaching a debt settlement.
