Harel Issuances in the First Quarter: Series 24 Will Test Harel Insurance's Cost of Capital

Harel Issuances opened 2026 with a report that looks almost uneventful at the profit level, but that quiet result is exactly what matters. The quarterly loss was only NIS 54 thousand, after a NIS 78 thousand loss in the comparable quarter, and equity remained negative by about NIS 6.1 million, almost unchanged from year-end 2025. This is not a company trying to grow revenue or defend an operating margin. It is Harel Insurance's financing conduit, so the core question is not how much the issuer earned, but whether the conduit still closes symmetrically and what the market is willing to pay for the insurer's capital layers. In the quarter itself, the answer was stable: interest income and interest expense matched, the Series 21 fair-value movement closed on both sides, and expected credit loss provisions barely moved even after a severe macro shock described by the company. The economic change came after the balance sheet date: Harel Investments sold a large part of its Series 21 holding to the market, the company began advancing Series 24 for up to NIS 600 million as an additional Tier 1 capital instrument, and it decided to fully redeem Series 16 early at about NIS 306.9 million par value. The next few quarters are therefore not an income statement story. They are a test of cost of capital, demand depth for a subordinated instrument, and the ability to refinance capital layers without letting the quarterly report become a misleading headline.

Company Setup

Harel Issuances is a wholly owned subsidiary of Harel Insurance. It has no traded equity, no insurance activity of its own, and no independent earnings engine. Its only activity is to raise funding in Israel through bonds and notes, then deposit the proceeds with Harel Insurance for its use and responsibility. That makes it a special kind of financial company: not an insurer, not a regular credit company, and not a bond issuer with independent assets, but an intermediary layer between the capital market and Harel Insurance's capital needs.

The investor implication is simple but critical. A net profit or loss of a few tens of thousands of shekels says little about company quality. The real drivers are Harel Insurance's credit quality, solvency ratio, ratings, the loss-absorption mechanics in the capital instruments, and market terms for issuing or redeeming series. In the previous annual Deep TASE analysis of Harel Issuances, published at /en/analysis/1952, the key point was that the tiny profit was background noise. The first quarter reinforces that view: almost everything that matters sits in the capital structure, not the income statement.

The company has no active traded share line and no relevant short-interest data. Market reaction therefore has to be read through bonds and subordinated instruments, not through an equity market cap or a profit multiple. The question is not whether the company is growing. It is whether Harel Insurance can convert high ratings and market access into cheaper, stable, and more flexible financing.

The Quarter Confirmed That Profit Barely Matters

The important number in the quarter is not the NIS 54 thousand loss, but how it was created. Interest income calculated using the effective interest method was NIS 61.207 million, exactly matched by interest expense. The fair-value movement of the financial asset tied to Series 21 created a NIS 10.511 million expense, while the liability side recorded income in the same amount. The NIS 187 thousand reimbursement from the parent company matched NIS 187 thousand of general and administrative expenses. What remains at the bottom line is almost entirely the NIS 54 thousand expense for expected credit losses.

That is not cosmetic symmetry. It means the company continues to work almost fully as a conduit: funds raised in the market are deposited with Harel Insurance, and the asset and liability terms are similar. As long as that symmetry holds, reported profit remains secondary. Any break in that symmetry, especially in expected credit losses or in the terms of a new capital instrument, will matter far more than the bottom line itself.

The continuity with 2025 matters. A prior follow-up on expected credit losses, published at /en/analysis/3837, showed that the equity deficit almost mirrored the provision balance. In the first quarter, the provision did not continue to decline. Instead, the company recorded a small expense. That is not a material deterioration, but it does mean the 2025 profit, which came from a provision release, has not become a recurring earnings run-rate.

The Real Move Started After the Balance Sheet Date

The quarterly report itself is stable, but the subsequent events already change the agenda. On April 20, 2026, Harel Investments completed a sale of NIS 385.851 million par value of Series 21 bonds to classified investors, for total proceeds of NIS 422.507 million. This did not inject cash into Harel Issuances, because Harel Investments was the seller, but it is an important signal of the market's ability to absorb a large additional Tier 1 instrument that was issued last year.

The next event is more important. The company and Harel Insurance began examining a public issuance of Series 24, whose proceeds would be recognized as an additional Tier 1 capital instrument for Harel Insurance. S&P Maalot assigned an ilAA- rating on May 13, 2026 to a potential issuance of up to NIS 600 million. At the same time, on May 26, 2026, the board decided to fully redeem Series 16 early on June 30, 2026, at NIS 306.871 million par value. The combination matters: this is not just gross debt growth, but another round of capital stack design, with a potential subordinated capital layer and a redemption of an existing series.

Series 24 is not a regular bond. The draft trust deed sets a final maturity date of June 30, 2076, the first semiannual interest payment on December 31, 2026, and the first call date on June 30, 2037, subject to regulatory approval. The interest rate will be set in the tender. If the company does not redeem at the rate-reset date, the rate resets to a five-year shekel government bond yield plus the original issuance spread. On the risk side, interest can be cancelled if Harel has no distributable profits, if its recognized capital is below the required solvency capital, or if Harel's board or the regulator activates the stopping mechanisms. Principal can be written down if Harel's solvency ratio falls to 75% or below without a capital restoration, or if Harel receives a going-concern emphasis.

This is what the market has to price. High ratings and market access can lower the cost of capital, but an additional Tier 1 instrument also transfers cancellation, deferral, and write-down risk to holders. Series 24 will therefore be a cleaner test of what the rating upgrades actually buy for Harel Insurance: not a rating headline, but real demand for a subordinated instrument with loss-absorption terms.

What Remains Open for the Next Few Quarters

The report does not provide a new Harel Insurance solvency ratio, so it cannot prove by itself whether the distance from cancellation and write-down triggers improved or worsened. What the report does contain is a negative event that did not happen: despite describing a severe security and macro shock in the first quarter, the company says no increase was observed in expected credit loss provisions for deferred deposits with Harel Insurance because of that event. That is a reassuring signal, but a limited one. It does not replace an updated solvency ratio and it does not tell us how the market will price Series 24.

From here, three data points will drive interpretation. The first is whether Series 24 is actually issued, and at what interest rate relative to Series 21 at 5.85% and Series 22 and 23 at 4.8%. The second is whether the early redemption of Series 16 is read as efficient capital management or as a need to refinance an existing layer at a higher cost of capital. The third is the direction of expected credit loss provisions in coming quarters: if the provision remains stable, the market will stay focused on issuance pricing; if it rises, the report will quickly return to Harel Insurance credit quality.

There is also a practical constraint worth keeping visible. Because Harel Issuances has no traded equity, there is no normal way to read market reaction through an equity market cap. Pricing will show up in spreads, demand from classified investors, issuance terms, and the ability to redeem early without pressure. This is a company to read through the debt market, not the equity market.

Conclusion

The first quarter of Harel Issuances reinforces that the issuer itself is not the center of the story. The structure remains symmetric, profit is almost nonexistent, equity remains negative by about NIS 6 million, and expected credit loss provisions have not become a new problem. On its own, the report could have been a very small event.

The post-balance-sheet events make it more relevant. The partial sale of Series 21 to the market, the preparation for Series 24 of up to NIS 600 million, and the early redemption of Series 16 move the focus from accounting profit to Harel Insurance's cost of capital. The current read is stable but not clean: the report shows no immediate credit deterioration, but the real proof will come only if Series 24 is issued on terms that show the market is willing to fund additional Tier 1 capital at a cost that is not heavier. If the issuance is priced expensively or does not happen, the quiet quarter will look less like stability and more like a pause before a harder test of debt-market access.