2020 has seen a revival in IPOs on the Tel Aviv Stock Exchange of both tech and traditional companies. But these are dwarfed by the eagerly anticipated public offering of government- owned Israel Aerospace Industries (IAI), which has a company valuation of over $3.6 billion and plans selling a 25% stake - nearly $1 billion.
The Israel Aerospace IPO won't yield for the state the full value contained in it, if it is not open to investors from abroad," TASE CEO Ittai Ben-Zeev told "Globes." "You cannot raise $1 billion just from Israeli institutions. It's too big for the domestic market and the valuation of the company will be lower, if there is not a global offering."
The model proposed by Ben-Zeev is similar to the model of the TASE's own IPO, and was repeated in the recent IPO by Max Stock, and is based on book-building rather than a single auction and offering. Beyond the IPO itself, Ben-Zeev hopes that the offering of IAI and the parallel privatization and flotation of the Israel Environmental Service Company (ESC), will be the first buds in a flourishing sell-off of government owned companies - one of the targets that he took aim at when he assumed his position as TASE CEO.
Another government company that has the green light for privatization of a 49% stake is Mekorot Development and Enterprise, a subsidiary of the Mekorot water monopoly. ESC should earn the state coffers NIS 200 million, while Mekorot Development and Enterprise is likely to be sold to a strategic investor but could be floated if no such investor is found.
But the real prize for the TASE is the IAI flotation, which received approval from the ministerial privatization committee on November 19. This is one of Israel's biggest tech employers with 15,000 staff and one of the country's most important exporters.
In recent years most of the government owned companies have raised bonds on the TASE rather than selling shares. Since the privatization of the banks 30 years ago, most of Israel's privatization program has been postponed, leaving Israel as one of the only developed countries that still owns 100% of its companies.
The last privatization decision by the government was in 2014 when it proposed raising NIS 15 billion in selling minority stakes of most government companies.
According to the timetable set by Government Companies Authority head Yaakov Kvint, the flotations of IAI and ESC will take place before the end of May 2021. The IAI IPO is dependent on the signing of a new collective agreement with its employees and an order that will anchor the state's interests in the company. In the case of ESC, a solution regarding competition is also required.
Since the start of 2020, 19 companies have been floated on the TASE and four more are in the pipeline in advanced stages towards an IPO. Government Companies Authority deputy director general Uri Sheinin told "Globes" that the government is well aware of investors' huge appetite for new companies.
There is no reason that an offering like this won't become a commercial success," said Ben-Zeev. "There was never so much money held by investors bearing such low interest. A company like IAI, after the story about landing on the moon, has already aroused interest from the world's biggest investment bodies, and in my opinion it will be very attractive for world Jewry. IAI and Rafael with Iron Dome are assets that the government can offer the world."
And what about the security considerations? Ben-Zeev believes that it is possible to reach understanding with the Defense establishment, which will not harm the success of the company. The example of Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) shows that defense companies can successfully combine these things.
Meanwhile there has already been a slight delay in the timetable for the flotation. The tenders for choosing underwriters and book-runners, which should have been published in November, should be published in the coming weeks. No decision has yet been taken on whether the underwriters will be international because of reservations that the Ministry of Defense has about the participation of foreign underwriters.
Liron Singer, Head of Finance and the Capital Markets at the Government Corporations Authority says that after the underwriters are chosen the government will have to decide on the type of offering but he still believes the timetable of a flotation by May is realistic.
Singer said, "IAI is a company that reports (its bonds are traded on the TASE) so it only needs to publish a shelf prospectus while ESC, which has not reported to date, has to publish an initial prospectus. It's true there are matters to be settled but at least in the case of IAI, the company has a very high level of preparedness."
Ben-Zeev remains optimistic. "Government companies that become public improve by definition their profitability because the capital market will measure government companies by the same parameters that it measures regular businesses. You have a share whose price is set every day and you have the general meeting. Rafael or a company like Israel Natural Gas Lines, which already have bonds have no reason not to put out a prospectus and sell their share equity to the Israeli public. IAI is a flagship. Therefore, the large flotation of a very significant company, after it is successful, and there is no reason that it wouldn't be successful, would bring after it 10-15 government companies that could easily raise NIS 15 billion over the next two years."
Published by Globes, Israel business news - en.globes.co.il - on November 30, 2020
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