Almost four years have gone by since the ministerial privatization committee decided on the flotation of Israel Aerospace industries (IAI) on the Tel Aviv Stock Exchange, but, for all investors’ appetite for high-quality defense stocks, the move, which was meant to inject billions of shekels into the state’s coffers, has not materialized. This is despite the fact that the company’s bonds are already traded on the stock exchange, which should make the process easier.
In November 2020, the ministerial privatization committee approved a plan whereby the state could sell up to 49% of the shares in IAI through a public offering. Initially, about a quarter of the shares in ISAI were to have been sold for an estimated NIS 3 billion. Underwriters were chosen, but for a number of reasons - the priorities of the relevant government ministries, the need to reach understandings with the company’s powerful union, and, in the past two years, the weakness of the primary market in Tel Aviv, which almost completely dried up - prevented the offering from going ahead.
On the part of the government, the process of floating IAI’s shares was meant to have been led by David Amsalem, the minister responsible for the Government Companies Authority, and Minister of Defense Yoav Gallant. With a war on his hands, Gallant has no time to deal with the share offering, which requires complicated coordination between ministries that do not see eye to eye on this and other matters. It is thus not clear when the offering wil be back on the agenda.
IAI develops, sells and maintains military and civilian aircraft, missiles, and military electronics products. It has bonds amounting to NIS 154 million traded on the Tel Aviv Stock Exchange with a yield to maturity of 4.3%.
Even without a flotation, the state benefits from ownership of IAI, whose business is booming because of the war in Israel and the arms race in Europe. Last week, the company’s board of directors, chaired by Amir Peretz, approved the proposal by CEO Boaz Levy to pay the government a dividend of NIS 580 million, after record results in 2023: a net profit of $328 million on revenue of $5.3 billion.
Meanwhile, "Globes" has learned that acting director of the Government Companies Authority Yanki Quint wrote to Gallant this week demanding that the process of floating IAI should be renewed, at Amsalem’s request.
Quint stated that the indications were that an offering of 35% of the company could yield over NIS 10 billion.
"Because of the war and the security situation, defense budgets and needs have grown, and this is expected to continue in the coming years," Quint wrote. "As a direct consequence, the Israeli defense companies need to increase their rate of production and supply to the defense forces, and so substantial investment is required in production lines, infrastructure, and research and development, in order to maintain our technological advantage and develop the State of Israel’s future weapons."
Quint’s approach comes after last week it was reported that the labor dispute over salary scales at IAI had ended, and that the sides were continuing with negotiations in the hope of reaching a permanent solution by the end of the year.
Published by Globes, Israel business news - en.globes.co.il - on June 19, 2024.
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