Israel's Bezeq Sinks After Chairman Called Into Securities Probe

  • After brief trading halt, shares fall by most since May 2016
  • Probe comes on top of regulatory issues company’s dealing with

Shares of Bezeq Israeli Telecommunication Corporation Ltd. fell the most in over a year Tuesday after Israeli regulators raided company offices on suspicion the chairman violated securities law.

The Israel Securities Authority is looking into possible transgressions “with regards to transactions related to the controlling shareholder,” the regulator said in an emailed statement, without providing more detail. Bezeq chairman Shaul Elovitch is the company’s major shareholder through a cascading arrangement of holding companies ending with his Eurocom Group Ltd.

The ISA informed Bezeq of its probe Tuesday morning. The company said it “has no further information about the nature and circumstances of the investigation," according to a Tel Aviv Stock Exchange filing.

The probe comes on top of other regulatory issues that Israel’s largest telecom company has been dealing with. Foreign investors have dumped the stock this year after tiring of waiting for regulatory reforms that would cuts operating costs and make Bezeq more competitive. Removing a requirement for “structural separation” of its operating units could allow Bezeq to save more than $100 million a year, according to some estimates.

Challenging Backdrop

The investigation contributes to “a more challenging political backdrop for Bezeq with regards to the removal of its structural separation,” Roni Biron, co-head of research at Excellence Nessuah Brokerage Ltd., wrote in a note to clients. “In the absence of a regulatory catalyst, Bezeq’s underlying business remains under pressure.”

After a brief suspension of trading Tuesday morning, Bezeq shares were down 4.4 percent, their largest drop since May 2016, to 6.19 shekels as of 3:19 p.m. in Tel Aviv.

The Israeli business daily Globes reported the ISA is investigating the merger of Bezeq’s television unit with the parent company, and payments the unit made to Eurocom under pressure from Elovitch. Bezeq didn’t reply to a request for comment about the Globes report.

No Leniency

"There is no leniency in the matter of enforcement," ISA chairman Shmuel Hauser said in a Jerusalem conference Tuesday, without elaborating further on the investigation. "Our approach is to ease regulation wherever possible and to enforce the law in an uncompromising manner where that is necessary."

Excellence Nessuah’s Biron said the matter is likely to weigh on Bezeq for a while.

“As long as the investigation continues, I think there will be an overhang over the share that will affect sentiment,” he wrote.

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