"Concentration is not a problem"

In an exclusive interview with "Globes", Nochi Dankner challenges some widespread assumptions about the Israeli economy.

Nochi Dankner is the chairman of Israel's largest holding company, IDB Holding Corp. Ltd. (TASE:IDBH), which includes key companies in the economy, such as the country's largest mobile carrier Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), the largest supermarket chain, Shufersal Ltd. (TASE:SAE), the second largest insurance company Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), agrochemicals producer Makhteshim Agan Industries Ltd. (TASE: MAIN), and cement monopoly Nesher Israel Cement Enterprises Ltd. IDB is at the heart of criticism and fear, and Dankner does not know what the ruckus is all about. In a special interview with "Globes", he presents the other side of the picture, and warns against populist attitudes about centralization.

"Globes": What is your opinion about the fears about the control of Israel's economy by a coterie of families?

Dankner: "I abhor the use of the term "families". There are no families here. It may have once been true, when there were only a few wealthy families in the economy -Recanati, Eisenberg, Fromchenko, and Moshevitz. Then, it was still true to call them families. I dont operate as a family, but as an entrepreneur and businessman. The fact that, in business, parents bring in their children, does not turn control of the economy over to families. Whatever the case, there are many advantages in the presence of large, sound, business groups, which hold a range of companies."

What are the advantages?

"Diversification in holding companies that own companies in different sectors enables the holding companies, and therefore their subsidiaries, to have greater stamina in times of crisis, so that if one operational company faces liquidity distress, the parent company can help it with a capital injection."

What is your opinion about the Bank of Israel's figures about centralization in the economy by a few conglomerates?

"The Bank of Israel mentions centralization, but the figures that the Bank of Israel presents do not demonstrate high centralization in Israel. There is no problem of centralization in the economy. And by the way, the conduct of the Bank of Israel gives a sense of economic stability, and I am pleased that Stanley Fischer is Governor of the Bank of Israel, as he is a wise and cautious man with a broad macroeconomic perspective."

So you dont think that there is a problem of centralization in the Israeli economy.

"There is no problem of centralization in the economy. It's a mistaken agenda. Populist. Centralization is average compared with other countries, and more importantly, centralization in Israel is easing from one year to the next; it's not increasing.

"In the past, the economy was owned by the government and the unions; then it was owned by a small number of tycoons. But the list of the influential and large conglomerates in the economy has been growing over the years. If we once talked about four conglomerates, by the middle of the decade there were eleven, then thirteen, fifteen, seventeen, and we're now talking about twenty leading conglomerates. There is no doubt that the number will continue to grow as the economy develops and grows."

Most of the criticism about centralization is leveled at IDB, which is accused of being too aggressive and too strong. What do you think about these comments?

"IDB Holding is not aggressive at all, and the fact that IDB prepared for the crisis in advance, and emerged stronger from it, is no reason to burden it with regulations, but the opposite. I believe that all the regulators are encouraged that IDB weathered the crisis without shocks, in contrast to what happened to some other conglomerates. This undoubtedly contributed to the economy's stability during the crisis."

Nonetheless, what will you do if it is decided to reduce your power?

"Over the years, we've closely cooperated with all the regulators, respected their decisions, and played by the rules. We'll operate exactly as decided. We'll be happy to contribute to any process that will strengthen and improve the Israeli economy, but I hope that the good of the economy will be the regulators' guiding light, and that actions will be practical, not populist. We must not reach a situation in which conglomerates are prevented from doing business. As far as I'm concerned, the decision not to participate in the tender to build the solar power station at Ashelim was mainly for this reason."

There have been recent reports that you plan to sell Clal Insurance. What's the status of this?

"As we recently announced, we've received a number of inquiries from Israeli and foreign investors interested in acquiring Clal Insurance. If we find these inquiries attractive, we'll consider them."

Would a decision to sell Clal Insurance be related to Prime Minister Benjamin Netanyahu's initiative to separate conglomerates' financial and non-financial holdings?

"There has been no decision to sell Clal Insurance. But it should be remembered that in order to develop and make new investments, it's sometimes necessary to sell some old holdings. Obviously, if there is legislation requiring us to sell the company, we'll act accordingly."

Do you agree that there is a problem in holding a financial company that provides credit and companies that consume credit?

"I understand the concern, but it's overblown. In this and other matters, there is too much suspicion, which is unsubstantiated. I dont think that any bank would give credit to anyone because of special ties it has with the controlling shareholder, just as no bank would refrain from granting credit in the absence of such ties. The management and directors of financial institutions are independent and conduct themselves properly."

Another issue that has made headlines lately is executive salaries.

"In some cases, executive salaries have indeed reached excessive levels, but the proposal to restrict executives salaries through legislation is, in my opinion, an expression of the inappropriate burdening of the business sector with regulation and is a consequence of the global crisis."

How is it possible to deal with the issue, except through legislation?

"Limiting compensation should remain with the companies and the boards of directors, and they know how to do it. Directors dont operate in a vacuum, and they're very sensitive to public criticism."

What's your position on royalties on natural gas discoveries?

"It's very hard for me to accept the attitude that when investors strike lucky by drilling for, and finding, gas, the state then retroactively changes the terms of the contracts.

"If the Israeli government believes that there are more energy reserves that are a national treasure, and it doesnt want private entrepreneurship, then let it decide to undertake investment in as in as many drillings at it sees fit, even though it may not find anything. It should be borne in mind that this is a high-risk business. I think that the country's citizens should be very pleased about the discoveries, since the state treasury and every Israeli citizen will benefit from them, both directly and indirectly.

"In future, over half of IDB's investments will be abroad

Dankner is not very concerned about regulatory measures that may be enacted against IDB and other conglomerates, and they are not about to disrupt his plans for the future, because he plans to expand IDB's business internationally.

"In order to grow, we have to expand our business outside of Israel. I've already been doing this for seven years," says Dankner. "Whereas only 3% of IDB's assets were overseas in 2003, the proportion is now 33%, and the process is continuing. Since we acquired control of the company, only 20% of new investment has been in Israel, and 80% has been abroad. At the same time, I've sold holdings in dozens of companies, including Israel Discount Bank (TASE: DSCT), Azorim Investment, Development and Construction Ltd. (TASE: AZRM), and Scailex Corporation (TASE: SCIX; Pink Sheets:SCIXF) for more than NIS 30 billion altogether."

What's your objective with your foreign investments?

"I believe that, in future, more than half of IDB's investments will be outside Israel. However, I wish to make it clear that we'll continue to be a patriotic and Zionist Israeli company. We'll continue to own and operate businesses in Israel, and we'll continue to help the community in Israel, with an emphasis on communities in outlying areas in the Negev and Galilee."

Most of your foreign investment is in real estate and the purchase of shares in Credit Suisse Group AG (NYSE: CS; SWX: CSGN; XETRA: CSGZ), which is a financial investment. Why haven't you yet acquired the controlling interest in a foreign company?

"Credit Suisse is not a financial investment, but a strategic investment, and we definitely influence what happens there. You should understand that it's not easy being the controlling shareholder abroad, when your life is centered in Israel. That's why it's better to join an existing controlling group or find high-quality management for the group."

So if its problematic to acquire control abroad, why expand there?

"In my opinion, we have four ways of investment abroad: one is minority financial investment in a large company with no influence on its management; the second is minority investment with influence, such as we have at Credit Suisse; the third is acquisition of a 20-30% controlling interest in a mid-sized to large company; and the fourth is investment in real estate."

Published by Globes [online], Israel business news - www.globes-online.com - on June 13, 2010

Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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