Tel Aviv Bourse Assails Conglomerate Proposal: Israel Overnight

The Tel Aviv Stock Exchange (TA-25) is challenging a state plan to break up conglomerates that control 41 percent of listed companies, saying the recommendations will stem initial public offerings and lower trading levels.

Chief Executive Officer Ester Levanon said she will testify before a government committee in Tel Aviv next week in opposition to Prime Minister Benjamin Netanyahu’s plan. The rule changes would encourage companies to list outside of Israel and reduce business on the bourse, Levanon said in an interview in New York, where more than 60 Israeli stocks trade. The Bloomberg Israel-US 25 Index surged 3.5 percent yesterday, while the benchmark TA-25 Index fell 2.3 percent to 1,040.96 at the 4:30 p.m. close in Tel Aviv.

Netanyahu unveiled the proposal in September, targeting 10 of the largest corporate groups, in a bid to spur competition. While supportive of the overall goal, Levanon said she opposes parts of the plan that would prohibit daughter companies of publicly-traded parents from listing in Israel and prevent a holding company to be included in the same index as its unit.

“We’re not aware of any place on earth where the government says which company can be or can’t be on an index,” 65-year-old Levanon, who has headed the bourse since 2006, said in the interview at Bloomberg’s headquarters yesterday. “Our message is we have to find a way in between, otherwise we won’t see Israeli IPOs on the Tel Aviv exchange but on the New York Stock Exchange.”

The biggest corporations, including Discount Investment Corp. and Delek Group Ltd. (DLEKG), comprise 41 percent of the value of publicly-traded companies in Israel, according to Finance Ministry data. Finance Ministry spokesman Boaz Stembler declined to comment yesterday.

Teva, Blue Square

The benchmark TA-25 Index has dropped 22 percent this year, the worst annual performance since 2008. The Bloomberg Israel-US 25 Index of the largest Israeli companies traded in New York is poised for a 21 percent slump in 2011.

Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest maker of generic drugs, gained 1.3 percent to 145 shekels, or the equivalent of $38.27. The shares closed at $38.27 in the U.S. yesterday, a 43-cent premium over yesterday’s closing price in Tel Aviv, the largest among the biggest Israeli companies in New York.

Alon Holdings Blue Square Israel Ltd. (BSI), the country’s second-largest food retailer, declined 3.9 percent to 17.71 shekels, or the equivalent of $4.67. The U.S. shares climbed for a third day, increasing 2.4 percent to $4.74 yesterday.

Blue Square said third-quarter net income (BSI) rose to 33.8 million shekels from 2.1 million shekels a year earlier following the acquisition of Dor Alon Energy in Israel (1988) Ltd. Revenue soared to 3.96 billion shekels from 1.92 billion shekels, according to a statement filed yesterday with the Tel Aviv Stock Exchange.

Ormat Gains

Ormat Technologies Inc. (ORA), the developer of geothermal power plants, climbed the most in a month, advancing 4.8 percent to $17.69. The company said its unit signed a $65 million engineering contract with a subsidiary of Cyrq Energy Inc., for the construction of a geothermal project in the state of New Mexico.

The Cabinet approved a government panel’s recommendation on Oct. 9 to cut the defense budget to help finance higher social- welfare spending following mass protests over rising prices.

‘Disturbing’

The demonstrations and boycotts, which started in June as the price of cottage cheese was raised, prodded Tnuva Food Industries Agricultural Co-Op In Israel Ltd., which controls about 70 percent of the dairy market, to cut recommended selling prices by as much as 15 percent earlier this month. Competitor Strauss Group Ltd. (STRS) followed with reductions of 12 percent on some of its milk products.

Levanon says the most “disturbing” suggestion by the panel is that private companies with a major holding by an exchange-traded group won’t be allowed to list on the bourse.

“We can’t rule out the problematic issue about there being too many owned companies in Israel, but when a private company becomes mature and wants to list on the exchange you’ll prevent it using these rules,” she said.

The panel aims to eliminate major cross holdings by groups and strengthen antitrust rules in a country where about 20 families control 25 percent of the listed companies on the Tel Aviv bourse. The representation is among the highest concentrations among developed economies, according to the central bank’s 2009 annual report.

Technology Companies

Levanon became CEO in June 2006 after spending 20 years leading the bourse’s information technology department. Before joining the exchange, she managed the computer system of Shin Bet, the Israeli security agency.

The Israeli bourse’s head, who will attend the Israel Day event at the New York Stock Exchange today, is seeking to bring more technology companies to the benchmark TA-25 Index to make the measure more representative of the Israeli economy.

“I would like to have a better representation in the TA-25,” she said. “We want to see more technology companies in there.”

Nice Systems Ltd. (NICE), an Israeli company based in Ra’anana that provides analytical tools for recording service transactions, is the only technology company on the benchmark measure which has seven listings with investments in oil and gas. Israel has the most stocks traded on the Nasdaq market of any country after China, with about 60 listings.

Israel counts on exports for about 40 percent of gross domestic product, with 47 percent of the industrial shipping being high technology, according to figures compiled by the Jerusalem-based Central Bureau of Statistics.

Rate Cut

The Israeli stock market, upgraded by MSCI Inc. in May 2010 to developed market status from emerging, recorded a net $810 million of sales of Tel Aviv-traded shares in 2010, compared with $1.7 billion of purchases in 2009, data compiled by the Bank of Israel show. Uprisings in Arab nations have contributed to the decline in trading as investors have shunned the region, she said.

“The Arab spring has nothing to do with us, but there’s no way to tell people that there’s no similarity and connection between what happens in Egypt or Syria to us,” she said.

The Bank of Israel cut yesterday the lending rate by a quarter percentage point to 2.75 percent in a bid to bolster the economy as Europe’s sovereign-debt crisis threatens global growth.

OECD Outlook

The Organization for Economic Cooperation and Development lowered its economic growth forecast for Israel for this year and next as the European sovereign debt crisis crimps demand for the country’s exports.

The OECD cut its forecast for 2012 to 2.9 percent from its May estimate of 4.7 percent, according to a statement yesterday. The group also reduced its projection for this year to 4.7 percent from 5.4 percent. Growth will rebound to 4.7 percent in 2013, the Paris-based OECD said.

The shekel weakened 0.2 percent to 3.7896 a dollar. The currency is headed for a 7 percent drop this year, the worst performance since 2002.

To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net;

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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