Israel Railways: commitments from institutions to purchase NIS 380 million bonds in a price index minus 0.8%

Israel Railways reported that it received commitments from institutions to purchase NIS 380 million in third bonds that the company intends to issue - the company received 100 million par value of bonds from the offers.
The issue price closes at about NIS 1,086 per 1,000 units of bonds and therefore the amount the company chose to take from the institutional investors is about NIS 108.6 million. But the interesting part here is the interest rate, the effective interest rate on the bond linked to the consumer price index Stands at minus 0.8%, which means a negative real interest rate of almost one percent! The price set will be the minimum price - that is, it is possible, but not certain, that the interest rate will be even lower.
As we wrote in BizPortal, due to the fear of inflation and the low interest rates that currently exist in the market, a phenomenon is beginning to emerge that is expected to intensify - of bonds linked to the consumer price index and issued at a negative interest rate.
A bubble is developing in the bond market. A bubble that stems from the misconception that "there are collateral and there is a company behind the bonds so nothing can happen." As a result, even companies that are not in a solid financial position are able to issue bonds at very low interest rates.
This is not about the chance that companies like Azorim or Israel Railways will go bankrupt, since the chance in their case is low to zero. In the case of companies such as Israel Railways and regions, the problem stems from the fact that the entities that in most cases invest public money - receive a zero real return that is accompanied by risks that may arise if interest rates rise above inflation or if the consumer price index remains almost static.
There is no need to expand on the activities of Israel Railways in large numbers. Financially, Israel Railways is not a profitable company and it has been losing money in recent years - some say that because of mismanagement and some say that because the prices for them are lower than they would be if the company was not a government company.
In any case - at Israel Railways, the profit is a bit of a lie. And no, that's not a euphemism for something else. The reason is that the company is one of the few that chooses to measure its fixed assets according to a fair value model. The vast majority of companies on the stock exchange measure their property by cost, meaning they purchase it and then depreciate over several years.
Because Israel Railways calculates the fixed assets according to the fair value model, a distortion is created in the depreciation expenses. We will explain this with a simple example: if Israel Railways purchases a train with a total cost of NIS 100 and reduces it evenly over 10 years, without a grat (ie it does not think it can sell the train as waste after using it) - then it will record depreciation expenses of NIS 10 Per year.
On the other hand - if the company purchased the train for NIS 100 and immediately after the purchase it discovered that it is expected to generate much less money from the train than it estimated due to, for example, a change in the train market; Then it will record the train in the balance sheet at NIS 60 instead of NIS 100 and in the first year it will record in the item expenses / other income an expense of NIS 40 except for the depreciation expense.
The problem is that the company's depreciation expenses in the fair value model will no longer be NIS 10 per year but NIS 6 per year (assuming the length of the train remains the same). That is, the profit will be distorted and it goes in both directions - both when lowering the value of the fixed asset in the model and also when raising the value.
The solution is to simply go to the cash flow statement, take the cash flow before changing the balance sheets of customers, debtors, etc. - remove the item of purchase of fixed assets in cash flow from investing activities and adjust the investment in fixed assets according to whether the company makes a large purchase once every few years. Then the flow used to purchase fixed assets in the calculation should be increased).