Member Article

SECTION 1: Market Overview

1.1 Please provide an overview of the project finance market in your jurisdiction.

Project financing is a well-established finance scheme in Israel, widely implemented in the last 15-20 years. It is used for debt financing in a variety of sectors, particularly where public private partnership (PPP) projects are involved. Water desalination, electricity, transportation (including heavy rail, LRT, ports and toll roads), are among the sectors where project finance is used, as well as in large-scale security related projects (for example, the IDF training base and the Israel Police training base) and residential projects (for example, student dormitories and long-term lease projects). Project finance debt transactions are structured according to international standards, including customary security packages and agreements (senior debt agreements, common terms agreements, equity subscription deeds, intercreditor agreements, direct agreements with all major project parties, etc.).

1.2 What is the composition of the market in terms of the types of active lending institutions and has this been evolving?

While almost all Israeli banks and financial institutions are involved in project finance, the two largest banks – Bank Hapolaim and Bank Leumi – are the main arrangers of credit consortiums. Foreign financial institutions such as Deutsche Bank, the European Investment Bank, HSBC and others also play a role in the Israeli project finance market. In recent years, it has become more common for non-bank financial institutions (for example, insurance companies and pension funds) to provide finance under project finance schemes without the involvement of banks as arrangers. This is done to avoid additional costs and to gain better control of projects.

1.3 Please describe any major current projects or initiatives that are influencing activity.

On September 3 2017, the Israeli Government published for the first time a multi-year plan specifying 147 infrastructure projects, each having an estimated cost of at least ILS100 million ($30 million), which various offices of the government intend to pursue between 2017 and 2021, having a total value of ILS116 billion. The plan states that a majority of the projects described therein were already approved by the government or the applicable authority. The majority of these projects are in the transportation sector and include large-scale PPP projects such as the Tel Aviv Light Rail Green Line (ILS20 billion) and the Purple Line (ILS8.6 billion), the Jerusalem Light Rail Green Line (ILS8.5 billion), Fast Lanes for Road 2 and for Road 20, and the new Road 16 to Jerusalem. In the energy sector, in December 2017, principles of a major reform initiative were agreed between the government and the Israel Electric Corporation (IEC). These include the sale of six power plants with a total capacity of about 2,000 MW to private investors and a green light for the IEC to develop two more gas based power plants in coming years. In the PV sector, there is a PPP project for the manufacturing of up to 500 MW, alongside other quotas available in the field of renewable energy (see Section 3.3).

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