Gov't Cos Authority head slams Treasury's 'absurd' El Al plan

El Al 737-900 / Photo: Yoav Yaari

Yaakov Kvint has blasted the Ministry of Finance's plan to buy shares in the airline's offering but not exercise its voting rights.

An internal dispute has broken out between the most senior government officials regarding the Ministry of Finance's plan to buy shares as part of the planned offering of El Al Israel Airlines Ltd. (TASE: ELAL) on the Tel Aviv Stock Exchange next week but not take any active role in influencing the company.

Government Companies Authority head Yaakov Kvint has expressed opposition to the plan, which he insists would allow the private controlling shareholders to do whatever they want with the money that the government is investing in El Al.

According to the latest plan presented by Ministry of Finance director general Keren Terner-Eyal, which will be put before the cabinet for approval in the coming few days, the State would keep any shares that it buys in the offering 'inactive', which would relinquish the government's right to influence the company and vote in the annual shareholders meeting. Following the offering, the government could potentially have a 45% stake in El Al.

The Ministry of Finance explained that the steps it was taking were to prevent El Al from becoming a government company. However, the Government Companies Authority thinks that such steps are unnecessary and might have destructive results for El Al's corporate governance and allow private shareholders to take advantage of the government investment for their own purposes.

In a letter sent by Kvint to Eyal Terner he said that there was no legal basis for the view that keeping the shares 'inactive' would prevent El Al from becoming a government company. In addition, he warns that, "The shareholders who won't participate in the offering, and especially the current controlling shareholders, have not invested capital and have not increased their exposure to the company but will continue to de facto control the company. They will keep full rights to appoint members of the board of directors and conduct material deals in the company, without the State being about to intervene in them, or even deciding to increase salaries for senior executives, which will be brought to the shareholders meeting for approval and all this without intervention from the State as a shareholder."

Kvint adds in his letter," The harm in the aforementioned balance between voting rights and de facto influence in the shareholders meeting can result in absurd situations such as taking unnecessary risks by the minority shareholders (as their ability to influence is substantially greater than their capital exposure), reinforcing their control in indirect ways, by restricting the State's ability to sell the shares through activities undertaken by the company's effective controlling shareholders in the company, which will influence its situation."

The Ministry of Finance has fixed a September 15 deadline for the public offering of $150 million. Subsequently the State will provide guarantees of up to 75% for $250 million in bank loans, or bond offerings. El Al is expected to publish details of the offering by September 10.

The Ministry of Finance said in response that it is, "Determined not to make El Al a government company or mixed-company, and everything that that means, for assistance following the aviation crisis resulting from the fallout of the coronavirus."

Meanwhile three businessmen are interested in buying El Al. Israeli-Russian businessman David Sapir is interested in injecting $51 million for a 38% stake in the company and obtaining a $400 million loan from Deutsche Bank. Eli Rozenberg has offered $101 million for a 45% stake in El Al and real estate businessman Meir Gurvitz is yet to detail his offer. Rozenberg is the only one of the three to have received a permit to buy control in El Al while Sapir's offer to share ownership with the controlling shareholders is preferred by El Al's board of directors.

Published by Globes, Israel business news - en.globes.co.il - on September 7, 2020 © Copyright of Globes Publisher Itonut (1983) Ltd. 2020

El Al 737-900 / Photo: Yoav Yaari
El Al 737-900 / Photo: Yoav Yaari
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