Israel Chemicals Ltd., a takeover target for Potash Corp. of Saskatchewan Inc. earlier this year, said uncertainty surrounding government policies risks driving away foreign investors.
Potash scrapped its proposed bid two weeks after Israeli Finance Minister Yair Lapid declared on April 11 that he’d “adamantly oppose” the fertilizer producer’s sale, which requires government approval. Lapid also announced he would reconsider how resource developers are taxed.
“The company is concerned that international investors might perceive Israel to be less of an attractive market to invest in due to the current uncertainty in the Israeli economic environment and because they find the Israeli government to be unreliable,” Israel Chemicals Communications Manager Amir Avramovitz said in an e-mailed statement yesterday.
Potash’s acquisition of the Israeli fertilizer producer, which mines minerals from the Dead Sea, would have been the biggest ever in the Middle East and created the world’s biggest provider of potash, a nutrient that helps crops withstand drought and strengthens plant root systems.
ICL shares, which had risen 5.3 percent in the first quarter, have lost 14 percent so far this quarter, compared with a 1 percent decline in the TA-25 benchmark index as of yesterday’s close. Concerns over new taxation and regulations fueled the drop, Gilad Alper, senior analyst at Excellence Nessuah Brokerage Ltd., said by phone earlier this month.
New taxation would mean revising an agreement the government signed last year with ICL that raised royalties on annual potash sales to 10 percent from 5 percent. As part of that accord, ICL also agreed to spend about $1 billion to dredge salt from evaporation pools that are threatening to flood Dead Sea hotels nearby.
Analysts have warned that renegotiating this agreement could be much worse for ICL than losing the tie-up with Potash Corp.
“It is inexplicable to international investors, and to ourselves, why the government of Israel plans to increase ICL’s government take” months after signing a contract where it pledged not to do so, Avramovitz said. “How can we explain that? What does it say about the government’s commitment?”
In abandoning its proposed bid, Potash said “there must be receptivity to foreign investment and certainty in the rules that govern such investment.”
The Finance Ministry said in an e-mailed statement that its agreement with ICL didn’t say it couldn’t change its fiscal policy and therefore government reliability hasn’t been damaged.
“The objective of the committee for natural resources that the ministry is forming is to define the public’s share in the resources that belong to them,” the ministry said.
Advocates of higher taxes on large corporations say a reassessment is fair because individual taxpayers have been asked to pay more as well. Thousands took to the streets earlier this month to protest Lapid’s proposed tax increases, calling on tycoons to share the economic pain. Idan Ofer, Israel’s second-richest man according to Bloomberg Billionaires Index, controls Israel Chemicals through his Israel Corp. holding company.
“ICL is the government’s favorite enemy these days,” Alper said by phone. “It’s extremely popular to fight ICL and there are many political uncertainties for the company right now, not the least of which is the possibility it will see its tax burden increased.”
Other foreign investors have also criticized Israel’s uncertain business environment. Noble Energy Inc. Chief Executive Officer Charles Davidson said in April that if a government makes a “practice of retroactively applying taxes after risk investments are made, at some point you scare off any future investment.”
Noble has a 36 percent stake in the Tamar gas field off Israel’s Mediterranean coast, which has an estimated 10 trillion cubic feet of natural gas and began production on March 30. Noble also holds nearly 40 percent of the undeveloped Leviathan field, Israel’s largest with an estimated 19 trillion cubic feet of gas.