Yesterday, at the height of the embarrassing farce that played out over the past few days over the offering by US biomed company MannKind, the captains of the Tel Aviv Stock Exchange finally came to their senses. They realized, very late in the game, that someone was exploiting their good intentions in opening up the TASE to foreign stocks for his own benefit, and not necessarily for the benefit of local investors.
In a statement released yesterday after the close, the TASE, headed by CEO Yossi Beinart, announced its intention of bringing a proposal before the board of directors next Thursday to amend the guidelines for accession to and removal from the market indices. Under the proposal , until the forthcoming reform of the TASE indices (which includes expanding the number of stocks in the indices and reducing the weighting of the largest companies), the stock of a company incorporated overseas will added to the indices only if the company in question demonstrates an affinity with Israel. The proposal, designed to stem the tide of high-risk foreign biomed companies flooding the TASE indices, will not however apply to companies that have already received the TASE management's approval for listing their stock for trading, or to those that receive approval by November 22.
As mentioned, the decision by TASE management came only after the tempest raised in the past three weeks by the listing on the TASE of US biotechnology companies Navidea, BioTime and, chiefly, MannKind, and their accession on that account to the Tel Aviv 100 and Tel Aviv 75 indices. The storm peaked yesterday, when, a day before the date when the exchange traded funds (ETF) were obliged to buy MannKind shares in advance of its accession to the indices on Sunday, the Israel Securities Authority (ISA) notified the ETFs that the shares they were about to buy from the company itself would be blocked from being sold in Israel, since the procedure would amount to a private placement.
The ISA announcement, just a day before the expected offering, put all the ETF firms in turmoil yesterday, and sharply affected trading in MannKind shares on the TASE. In the course of the session, the share price (which had fallen by 40% since being listed for trading here) shot up by more than 10% on the expectation that the ETFs would be compelled to buy the shares on the stock exchange, but by the close the price actually fell by 9%, after it emerged that the block would apply in Israel, but would not prevent the ETFs from selling the same shares on Nasdaq.
This morning, MannKind announced that its stock would join the indices as planned on Sunday, and stated, "The company is reconfirming its expectation of completing a previously-announced registered direct offering of its common stock to selected investment funds in Israel that are required to hold securities included within certain stock indexes of the TASE. " It added that the final number of shares to be sold in the offering (out of a prospectus for an offering of up to 50 million shares) would be determined on the basis of the number of shares the purchasers were required to hold within the indexes, and subject to the purchasers' desired allocation amounts.
Even so, because of the block on the shares offered, the ETFs are expected to buy only part of the offering, while a further part of their holdings will be bought on the stock exchange, in order to reduce the risk of holding shares that are not tradable in Israel.
The fact that the ETFs will yet buy some shares on the market sent MannKind's share price soaring 13% during the session, to NIS 9.1 (giving it a market cap of NIS 3.8 billion). During the day, the ETF firms kept their cards close to their chests, so the final number of shares that the company issues could be known only when trading closed, but it will be substantially lower than the company expected.
The storm raised by the listing of three US biotechnology companies on the TASE was originally set off by the fact that their automatic accession to the leading indices would oust three Israeli companies from the indices in December. But beyond that, the listing of BioTime and MannKind on the TASE exposed a hidden loophole that allows companies listed in the US to raise large amounts of capital in Israel without effort, simply by virtue of having large market caps in local terms. This loophole in the Dual Listing Law has in fact existed for years, but was first exploited only last month when BioTime announced, a day before its official accession to the indices, that the ETFs and tracking funds would buy shares from it to the tune of NIS 80 million directly in a private placement rather than picking them up from traders who had previously bought them on Nasdaq (as had happened in the past).
The amount BioTime raised was fairly small. In MannKind's case, the amount was to be five to six times higher (depending on the market cap on the offering date). When it announced its intention of listing in Tel Aviv, MannKind had a market cap on Nasdaq of about $1.4 billion (NIS 5.5 billion), and only a 40% crash in the share price there following disappointing financials cut its valuation to the current level.
Published by Globes [online], Israel business news - www.globes-online.com - on November 12, 2015
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