Privatizations worth NIS 5b await Israeli gov't

Yaakov Kvint

The partial sale of Israel Aerospace and full privatization of Haifa Port, and the Environmental Services Company have been approved but cannot be implemented until a government is formed.

Billions of shekels in revenue from the sale of government companies are waiting to get the green light from a new government, "Globes" has found. The money will come from an offering of shares in Israel Aerospace Industries (IAI) on the Tel Aviv Stock Exchange (TASE), the privatization of Haifa Port, and the sale of the Environmental Services Company. These measures have already been approved, but cannot be completed in the absence of a functioning government. It should be emphasized that the proceeds from the sale of shares are not recognized as state revenue, and therefore cannot be used to narrow the excessive government budget deficit. The money can, however, be used to help the state pay its debts, thereby indirectly decreasing the budget deficit.

Offering IAI shares on the TASE is the most important measures now being promoted by the Government Companies Authority. IAI, the Ministry of Defense, and other government agencies are partners in this measure. Prime Minister Benjamin Netanyahu decided in principle in December 2018 to offer 25% of the shares in IAI to the general public at a NIS 4 billion company valuation. It has also been proposed in recent months to increase the proportion of shares to be offered to 30%, or even 40%.

Another matter to be settled before the offering is held is changes in the rules for information disclosure in the prospectus for the offering, given the classified security aspects of IAI's activity, which the state does not want to disclose.

In addition to promoting the IAI offering, the state must make a special arrangement concerning rules for party at interest deals. The current rules require the company to go through a complicated and cumbersome process for every deal with the state. A special arrangement for IAI must therefore be enacted. Government sources nevertheless believe that the offering can be held with three months of the formation of a new government.

Government Companies Authority manager Yaakov Kvint and IAI chairman Harel Locker are pushing strongly for the IAI offering, despite the political chaos and the difficulty in forming a new government. Sources involved in these measures say that the Government Companies Authority and IAI management are finalizing the plan for the offering, so that the new government can approve it as soon as one is formed.

As "Globes" reported on Thursday, Kvint met with IAI workers chairperson Yair Katz in an effort to coordinate measures pertaining to the offer of a minority of IAI's shares. Katz presented a new demand at this meeting - that the state sell a 51% controlling interest in IAI in the offering, thereby making it a public company.

Katz says that IAI's current status as a government company hampers its development, and exposes it to burdensome state regulation. Among other things, these restrictions prevent IAI from hiring the best personnel because of opposition by the Ministry of Finance budget director. "The goal is separation from the Government Companies Authority. If an offering is held, IAI's workers should at least derive some benefit from it," he observed.

It is doubtful whether Katz's demand will be granted, mainly because of opposition by the Ministry of Defense. The Director of Security of the Defense Establishment (Malmab) objected to offering a minority of IAI's shares, fearing that important state defense assets would be revealed. Because of this opposition, former Ministry of Defense Avigdor Liberman ordered the heads of IAI and the Government Companies Authority to halt their promotion of the offering. After Liberman resigned and Netanyahu became minister of defense, plans for the offering were renewed.

Another company slated for sale is Haifa Port. Sources close to the process estimate that 90% of the privatization process has already been carried out, including agreements with the company's employees.

The main topic not yet solved is the attributes of the strategic investor to acquire control of the company. As part of obtaining a controlling interest, the investor will be required to invest NIS 1 billion in upgrading the port's infrastructure in preparation for the expected competition against the Haifa Bay Port, scheduled to open in 2022. In addition to this investment, the state expects proceeds of NIS 800 million-NIS 1 billion from the deal.

The sale of Environmental Services Company should be fairly simple - certainly in comparison with the IAI offering and the privatization of Haifa Port. The company, a small one with 180 employees, treats hazardous waste at Neot Hovav and other locations around Israel. The state's proceeds from the company's privatization are likely to be NIS 80-100 million. The company's privatization is awaiting a green light from the ministerial privatization committee.

Another issue awaiting a government decision is the Postal Bank. The state has sought to recruit a strategic investor for the bank for many years, but wants to retain control of it, so that it can be turned into a social bank. In July 2018, the ministerial privatization committee approved sale of shares in the Postal Bank in two installments: 20% to a strategic investor and 20% more to the public. The measure bogged down, however, due to opposition by Governor of the Bank of Israel Prof. Amir Yaron to continued government control of the bank. Yaron is demanding a government commitment to privatize the bank within five years as a condition for granting it a commercial bank license. If Yaron does not change his stance, it will be necessary to change the plan for privatizing the bank, among other things by means of legislation.

Published by Globes, Israel business news - en.globes.co.il - on October 28, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Yaakov Kvint
Yaakov Kvint
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