Old proposal which is still actual today in taking advantage of interest rate differential between emerging markets and Israel Capital markets

1. Taking advantage of the
Israeli Capital Markets
 The concept takes advantage of the Israeli
debenture market where debenture in
small amounts can be issued and sold at
relative low interest rates if linked to a
major currency such as the USD, EUR etc.
Prepared by Haim R. Branisteanu

2. Different approach to selling
residential RE in high
inflation, developing markets
Selling a property and issuing the related
mortgage equals - buying a yielding
property whereby the tenant has 20%
subordinated investment.
On the other hand inflation is bettering the
LTV ratio of the underlying asset

3. Suitable for Pension Funds
 The feature of monthly cash flow generated by
the mortgage payments makes this financial
product suitable for Pension Funds / Annuities
which are now in demand in the Israeli financial
markets.
 A pool of residential mortgages can be pooled
and resold to investors at various levels of risk
at higher prices, due to the lower risk inherent in
pooling mortgages as Mortgage Backed
Securities / or as any other pooling of debt.

4. Increased project profitability of
+30% to +50%
 The mortgage issuer can take advantage of
the spread and later on, at a proper timing,
resell it as a yielding financial instrument.
 Increased project profitability of up to 50%.
Anticipated spread for Eastern European
countries is expected to yield in a range of 2%
to 3% a year or about 10% to 15% over 5
years – which represents a substantial
increase to the developer bottom line.

5. Flexibility during the selling
process
 The developer can adjust the selling price
of the residential unit by 5% to 8% or
more, depending on market conditions.
 This can be achieved without increasing
the buyer’s monthly payments, by
controlling the interest on the mortgage
the time period and the unit selling price.

6. To enable the above;
 It is recommended to establish a special purpose
company which will “buy” the mortgages and then resell
debentures with a lien on the monthly (payment) cash-
flow form the mortgages and the properties (if rentals).
 Cost of distribution is estimated at 1.5% to 1.75%
including accounting and legal fees – or a 0.1% to 0.2%
PV load.
 Enter into an agreement with an established local bank to
perform credit worthiness of the buyer based on
predetermined criteria and then servicing the mortgage
cost – one time processing fee to be negotiated and
0.25% to 0.5% over the life of the mortgage.

7. Debenture Enhancement
 The debenture issued by the special purpose company
will be “pass trough” and upon market conditions,
possible but not always with an credit enhancement
instrument (insurance or put option) provided by a
governmental sponsored entity such as EBRD or OPIC or
a insurance company, commercial bank or hedge fund.
 Currency and Sovereign Risk - In addition currency
and sovereign / political risk hedging can be applied if in
the FX market (swaps) or country specific sovereign debt
market. For example the spread in Ukraine between
sovereign debt and retail mortgages is around 5.5%.

8. Assistance
 In certain markets assistance can be
received form Western Governmental
entities interested in promoting political
means and free enterprise in Central
Eastern Europe and former
USSR/CISS.
Prepared by Haim R. Branisteanu