Manna Is Falling Again In Israel

Netanyahu's sell-off program is red-hot

Israeli officials were worried about the government's plan to sell 19% of Bank Leumi last month. Would the freeze in the peace process and economic slowdown scare off potential buyers? But the $440 million offering went off without a hitch. "Just about every institutional investor we met with wanted in," says Ron Lubash, a Lehman Brothers Inc. managing director who helped distribute the issue.

The sale was a watershed for Prime Minister Benjamin Netanyahu's plan to privatize a huge portion of Israel's economy. In the first five months of 1997, the government unloaded more than $800 million in assets, and Netanyahu intends to raise $500 million more by yearend. Why the rousing reception? Despite Netanyahu's political travails, privatization enjoys wide support. "This gives him a big, fat chunk of cash" to spread around, says Robin Hacke-Farhi, CEO of HK Strategy & Finance Ltd., an Israeli investment bank. A gain of nearly 40% in the Tel Aviv stock market since Jan. 1 is helping, too.

SABBATH BAN. More bank sales are on the way. United Mizrahi Bank Ltd. and Union Bank of Israel Ltd. will soon be on the block. Two investor groups, one led by Carnival Cruise Lines founder Ted Arison and another by former Republic New York Corp. President Jeffrey C. Keil, are negotiating to buy 35% of Bank Hapoalim Ltd., Israel's largest lender, for as much as $1 billion.

Want to buy a phone company? Some 10% to 24% of Bezeq Telecom will be on sale this fall. And the government plans to sell shares in El Al Israel Airlines Ltd. in 1998. But El Al is expected to report an $80 million loss for 1996; this year should be little better. Moreover, religious parties in Netanyahu's coalition want a ban on El Al flying on the Jewish Sabbath to be maintained after it's privatized. That now costs El Al $50 million a year.

The government isn't getting out of business entirely. It will retain majority stakes in nearly all major state-owned banks and industries. Netanyahu's big test will be to become a minority shareholder. That could come in 1998. But for now, investors are lining up to bid.

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