How Jefferies is globalizing Israel's capital market

Natti Ginor at a conference in Tel Aviv  credit: Benny Doutsh

Jefferies' Head of Israel Investment Banking Natti Ginor talks about leading a new investment model on the Tel Aviv Stock Exchange.

The huge flotation of fintech company Nayax (TASE: NYAX) two weeks ago, at a pre-money valuation of $1 billion, stood out despite the flood of IPOs on the Tel Aviv Stock Exchange. Nayax began as a provider of payment solutions for operators of vending machines, and over the years broadened its product offering. The flotation, which took place at the beginning of the military operation in the Gaza Strip, amounted to over $200 million (including an offer for sale of some of the owners' shares), making it the second largest flotation ever on the Tel Aviv Stock Exchange (after that of Azrieli Group Ltd. (TASE: AZRG))

Another special aspect of the flotation is that it was led by US-based investment bank Jefferies, on the international offering model being promoted by the Israel Securities Authority. Jefferies (assisted by Oppenheimer and Leader Capital Markets) brought the proportion of shares in the flotation bought by overseas investors to 70%.

In an exclusive interview with "Globes", Natti Ginor, Head of Israel Investment Banking at Jefferies, explains how he sees Nayax's flotation - the third led by Jefferies in Israel in the two years since it started operating as a remote member of the Tel Aviv Stock Exchange; how overseas investors view the Israeli stock market; and his expectations for the future of the wave of flotations on the Tel Aviv Stock exchange.

"Nayax did something very important here. It demonstrated that it's possible to make an IPO in Israel and to grow from there to an offering overseas, and not to rush to Nasdaq. Our feeling is that many Israeli technology companies will realize that this is a very attractive option, among other things because Nayax drew many global investors, and I hope that it will the first of many choosing this track," Ginor says.

Among those global investors, it turns out, is also an investor from the United Arab Emirates. Ginor admits that he cannot comment on any specific investor, but he can say that among the investors were representatives of the Middle East, and not just from Israel. "We hope that in this respect too, this is the first of many," he says.

The Nayax IPO is, as mentioned, the third offering on the Tel Aviv Stock Exchange led by Jefferies on the international model, after the flotation of the stock exchange itself in 2019 (which gave investors a return of over 200%) and the discount stores network Max Stock in 2020. Underwriting and consulting fees in these three flotations totaled nearly NIS 100 million.

how do you see the differences between these three flotations?

"There are several large differences. Max Stock is a fast growing chain, but in the end it's still a chain of 50 stores in Israel, and the Tel Aviv Stock Exchange naturally had to be floated in Tel Aviv, but Nayax could have gone for Nasdaq, and so it's somewhat different.

"Nayax can always hold an offering on Nasdaq, whenever it's ready to do so, but they know that the Israeli public and Israeli investors have rights in their success, and they felt that they wanted to have Israelis among their shareholders, and not to forget where they came from."

Are there more flotations in the pipeline?

"There are a lot of interesting things in Israel, but we don't want to jump too fast and just be the ones with the most offerings, because you have to examine which companies have the potential for a successful flotation. We want to offer investors a high-quality product, and if we run too fast we won’t achieve what we want. We have to be very selective."

Involvement in Israeli offerings on Nasdaq

Apart from the its activity in Israel, Jefferies has been involved in several IPOs by Israeli technology companies on Nasdaq, such as those by, SimilarWeb, and others. Ginor is aware of the argument that the Israeli market is small, and one therefore wonders whether in Jefferies' view the flotation of a unicorn (a company valued at at least $1 billion) such as that of Nayax is a one-time event, or whether there is room for more large flotations in Israel.

"It will take a little time for technology companies to understand that although they can make an IPO on Nasdaq, that doesn't necessarily mean that they should do so. For many years, most technology companies thought that unless they got to Nasdaq, they would not be considered successful. But now these companies realize that a flotation in Israel is also an interesting option, and a successful evolution of their business.

"There are several companies on the brink of becoming unicorns, but we don’t see that as compulsory. We have time, and we're here for the long haul. After it happens another three, four or five times, it will become commonplace, and then we will all be able to sit back and say we achieved something."

Last week, the Ministry of Health announced the almost complete cancellation of the restrictions imposed because of the coronavirus pandemic. Is the fact that Israel is emerging form the crisis before other countries having an effect on inward investment?

"Investors around the world have always seen Israel as a leader in technology, healthcare, and so forth. Israel's ability to deal with the crisis faster than others, including us in New York, was a big public relations coup for the country. It's true that that is partly attributable to the fact that Israel is a small country, but at the same time, global investors realized that if it can produce such a quantity of unicorns at such a rate, it's worthwhile investing in Israel.

"We meet very many investors who say that they want to come to Israel, to invest and learn, so the combination of innovation, the development of the unicorns, the way the coronavirus was dealt with, the flotation on the local market - all these things represent a very interesting development for investors. The Israeli economy always comes back stronger from crises."

"The change in the flotation method happened when we came in"

The Tel Aviv Stock Exchange recently published data on the change in the flotation method in the past year, with a switch from the auction method, which prevailed here in the past, to the method of a non-uniform offering, which was used in over 80% of the offerings carried out in the past eighteen months. Under the non-uniform, or book building, offering method, the company and the underwriter build the orders book by inviting bids, and decide who will receive shares, how many, and the issue price.

Ginor: "I don’t want to be the one who attributes the change to Jefferies, but the change occurred at about the time that we started to work with the Tel Aviv Stock Exchange. We know that global investors don't participate in the auction method, because they want to be special so that they will be chosen.

"Issuing companies should have a choice of who will hold their shares, a choice based on criteria such as what kind of investors they are, how long they want to hold the shares, and whether they hold shares in competitors, and not just on how much they are prepared to invest. This is an amazing development and generates more cooperation, and I don't think that the Tel Aviv Stok Exchange will go back to the method that was prevalent there in the past."

How can Israeli stocks contribute to a global share portfolio?

"There are many funds in the US and the UK that have to be invested 50% or 60% overseas. Our message to global investors is that in Israel there are amazing companies, and the country enjoys several prominent advantages, such as strong rule of law, the fact that almost everyone speaks English, and the fact that it is geographically very close to Europe, so that if they are looking for global investments, it will be hard for them to find countries with such a variety of good companies for investment.

"Israel is an amazing market for investment, and it's as good as almost anywhere else in the world - Sweden, Brazil, or Germany - not just in technology, but also in companies like The Phoenix and Max Stock, for example. So exposure to opportunities in Israel is a superb opportunity."

Born in Israel, raised in the US

Besides the business aspect, Ginor has an emotional connection to Israel. He was born here, and his father and grandfather worked at Israel Aerospace Industries. His father was an engineer, and his grandfather reached the rank of vice president. His children study at a Hebrew school.

"We moved to the US in 1976. Both my older brothers volunteered for the IDF, and I grew up more as an American. We visited Israel frequently, and I had many friends in finance who told me that they lacked access to global investments. So we started talking to these investors, and to see how to enable them to invest in Israel, and from there we went on to focus on the Israeli market as an investment destination.

"I chose to join Jefferies in 2011 because it was the only place that specialized in small international markets. Because of my love for Israel, I couldn't be happier with what I do at the firm, which helps Israeli investors and Israeli companies, so that I can do that as part of my professional life; it's wonderful. Now is the most interesting time to be part of the Israeli ecosystem, and I hope that people will be able to see beyond what happened in Israel in the past three weeks, and that there is no better time to invest in Israel."

Valuing The Phoenix 30% above market

The other week, Jefferies initiated coverage of Israeli insurance company The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5), valuing it at 30% above its current share price, on the grounds that the stock was underpriced, mainly in the light of the growth in the company's business. The Phoenix's market cap recently passed the NIS 8 billion threshold, making it the biggest insurance company in Israel in market cap terms (ahead of Harel Insurance Investments and Financial Services Ltd. (TASE: HARL), which has a market cap of NIS 7.5 billion).

"We're trying to change something in Israel. On the one hand, we have talked a great deal about the attractiveness of the Israeli market, but on the other hand, although there are high-quality businesses here with excellent management, historically these companies have not been exposed abroad, in English, and have not participated in a roadshow.

"We devoted a great deal of time and resources to presenting these companies, in a roadshow and by other means as well, and we have nine companies that we are currently examining, such as the stock exchange, The Phoenix, Bank Hapoalim, Bank Leumi, Israel Discount Bank, Elbit Systems, Bezeq, and Max Stock. It's good both for the companies and for investors looking for new companies in which to invest, and I hope that in time we will cover more and more companies.

"This coverage enables us to compare the companies with similar companies in Europe, for example, and that happens with the banks as well. The insurance market in Israel is an excellent example of a strong industry with four to five attractive companies, and it will yet attract attention."

Israel Securities Authority seeks to remove barriers

A year ago, Israel Securities Authority (ISA) chairperson Anat Guetta decided to expand the Department of International Affairs, headed by Adv. Ofir Eyal, adding business development to its remit, in order to broaden the Israeli capital market by opening it up to international players.

The ISA realized that it in order to encourage companies, particularly technology companies, to raise capital in Israel, it needed to bring the international investors here, and to create an international flotation model in Israel, so that the companies would benefit from the advantages of having international investors, but would remain in Israel. The ISA is not trying to compete with Nasdaq, but it is taking steps to expand the Israeli market with the presence of foreign players, who will contribute to making the market more sophisticated.

The department works closely with international players with the aim of learning about the leading capital markets and adapting the Israeli capital market to best practice overseas, among other things by removing barriers and adopting global standards. The department advises and assists international players interested in operating in Israel (companies, underwriters, market makers, and investors) on regulatory aspects.

During the past year, a "regulatory roadshow" took place with leading international financial entities, to make Israeli regulation accessible and actively to open the door to these entities.

Natti Ginor

Manager of Jefferies' activity in Israel. Joined the group in 2011. Aged 46, married with three children. Graduate in law from Yeshiva University, New York. Among previous roles: managed Israel-US transactions at Bank of America Merrill Lynch for five years.

Jefferies Group

A wholly owned subsidiary of Jefferies Financial Group (NYSE: JEF) dealing in investment banking, underwriting, and pricing and management of assets and capital. Has over $51 billion in assets under management. Jefferies Financial Group is traded on the New York Stock Exchange with a market cap of $8 billion. Headquartered in New York with activity in over fifty countries. Employs some 4,000 people in thirty cities around the world.

Published by Globes, Israel business news - - on May 30, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Natti Ginor at a conference in Tel Aviv  credit: Benny Doutsh
Natti Ginor at a conference in Tel Aviv credit: Benny Doutsh
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