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Tel Aviv IPO Drought Worsens After Trading Sinks: Israel Markets

Tel Aviv Stock Exchange
National flags of Israel fly outside the Tel Aviv Stock Exchange (TASE) in Tel Aviv, Israel. Photographer: Ariel Jerozolimski/Bloomberg

The Tel-Aviv Stock Exchange is suffering its longest drought for initial public offerings in at least five years, adding to pressure on regulators trying to lure companies by proposing concessions including tax breaks.

No Israeli company has chosen Tel Aviv as its primary exchange for an IPO since a June offering by Kadimastem Ltd., a biotechnology group with a market value of less than $15 million, according to data compiled by Bloomberg. Since that sale, 10 companies have chosen foreign bourses to go public.

“There isn’t nearly enough liquidity and there aren’t enough sophisticated long-term investors,” Adam Fisher, partner at Bessemer Venture Partners in Herzliya, said in e-mailed comments March 10. The firm would rarely consider taking one of its companies public in Tel Aviv, he said.

Dwindling trading volumes are driving companies away from Israel, which has more active startups per capita than any other country, according to the Tel Aviv-based IVC Research Center. International investors began shunning Israeli stocks after May 2010, when MSCI Inc. pulled the country out of its emerging-market gauge and placed it in its developed markets index, where it was assigned a 0.2 percent weighting.

Right Steps

Trading on the Tel-Aviv Stock Exchange plunged 44 percent in the first two years after the reclassification, according to Bank of Israel data. Volumes fell further last year, with trading on the TA-100 Index dropping the most in five years as delistings left the exchange with the lowest membership since at least 2004, according to bourse data. Israeli companies raised $223 million in U.S. IPOs last year, the most since 2007, IVC Research Center data shows. The TA-100 Index fell for the first time in three days, declining 0.6 percent at the close in Tel Aviv.

In a bid to counter the trend, regulators said in January they are seeking to attract hi-tech listings by offering tax breaks and reducing bureaucracy. The Tel Aviv bourse is also in talks with global index makers to set up a technology equities gauge.

“The challenge is by no means insurmountable and the steps the bourse, the government and regulators are taking are the right ones,” Bruce Schoenfeld, director of research at New York-based BlueStar Global Investors LLC, a financial research company focused on Israel, said in e-mailed comments March 10.

First Step

The Tel Aviv bourse is positioning itself as a first step for companies seeking capital before listing abroad, said Hani Shitrit Bach, senior vice president at the Tel-Aviv Stock Exchange.

“Companies that want to raise a big amount of capital may find other equity markets more suitable to their size and needs,” she said in e-mail comments yesterday.

Bessemer is one of the largest shareholders in Ltd., an Israeli provider of online tools to create websites, whose listing in November was the nation’s largest IPO in the U.S. in more than six years. The stock, along with that of Kamada Ltd., an Israeli drug maker that also listed in the U.S. last year, soared more than 50 percent since IPO.

“We are seeing a wave of local companies that want to get out and are not even considering listing on the Tel Aviv bourse,” Gilad Alper, a senior analyst at the Ramat Gan, Israel-based Excellence Nessuah Brokerage Ltd., said by phone March 11. “Unless we will see changes in the government’s actions to ease regulation, we will continue to see more companies listing abroad.”

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