Israel's postal service seeks government bailout

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Analysts predict large operating losses if a major recovery plan isn't implemented.

Israel Postal Company bondholders plan to appoint representatives after Sukkot to seek government involvement in turning around the financial situation at the state-owned postal service.

The postal service's bondholders, including major institutional investors, decided their next step after Israeli ratings company Midroog lowered Israel's Post's credit rating last week from A2 to A3 with a negative outlook. Among the bondholders are Meitav Dash, Psagot Investment House, Bank Leumi, Phoenix, Excellence Nessuah, Harel Insurance and Gilad Pension Fund's old pension fund.

A source at one of the financial institutions said that previous attempts to discuss Israel Post's financial situation were not adequately addressed by the Finance Ministry and that the government could not let the company declare bankruptcy, as it did in 2011 with the Agrexco Agricultural Export Company.

“This is not a case like Agrexco, in which the government held 30%. It owns [the postal service] 100% and it must intervene,” the source said.

Asked by TheMarker whether the government would allow the postal service to go bankrupt, the Finance Ministry did not provide an unequivocal answer. “Professional authorities forecast that the company will be able to meet its obligations in the short term,” the ministry responded. It added that government authorities were following the situation at the postal company and would examine whether and what steps to take to ensure the company met its financial obligations.

The drop in the postal company's credit rating has important financial ramifications, because the company raised funds three years ago by issuing NIS 400 million in bonds to the public, primarily to institutional investors. Under the terms of the bond indenture, following the credit rating downgrade the annual interest rate for the remaining bond payments will rise to 4.63% from 4.13%, increasing debt financing costs for the postal service.

In downgrading the postal service's credit rating, Midroog analysts said that without the implementation of a broad recovery plan at the company, it's operating lost was expected to reach NIS 85 million this year, compared to NIS 65 million the previous year and NIS 7 million in 2011. The analysts attributed the worsening financial situation at the postal service to dropping operating revenues, due to a decline in the amount of mail sent through the postal service, and increasing expenses at the company. In particular, the analysts pointed to a trend of increasing payroll costs, which they said constituted two-thirds of the postal service's operating expenses.

The ratings report said that the state's ownership of the postal service helped its rating by reducing the company's credit risk. In plain English, the postal service's financial situation is bad, but the ratings agency believes it unlikely that government will let it go bankrupt.