Concerns grow for future of Tel Aviv exchange

Last updated: January 6, 2014 5:12 pm

Concerns grow for future of Tel Aviv exchange

By John Reed in Jerusalem

Plans by Israel’s Delek Group to list shares abroad have added to longstanding concerns for the future of the Tel Aviv stock exchange, following similar moves by other companies.The $200bn exchange has seen its daily trading volumes fall to about $300m a day, half their peak before Morgan Stanley’s reclassification of Israel as a developed market in May 2010 caused benchmark-following emerging market investors to buy stocks elsewhere.

Delek Group, the energy company involved in Israel’s big offshore gas holdings, ast week said it planned to spin off a new company for its oil and gas holdings, for which it might seek a foreign listing.

While Delek said both the new unit and its existing shares would continue trading in Tel Aviv, the announcement caused a ripple of anxiety at the end of a year that also saw Mellanox, the computing group, delist. Separately, Israel Corp, one of the country’s biggest industrial groups, said it planned to split its Israel Chemicals unit from its other businesses and seek primary listings for both it and the rump company outside Israel.

Listed companies complain of excessive regulation and a growing populist mood in Israeli politics that is depressing share prices, which lagged behind global averages last year. Israeli market participants say Yossi Beinart, the new chief executive of the Tel Aviv exchange who took over on Janyary 1, will have his work cut out in trying to attract new investors and listings.

“It’s tough to be a public company in Israel,” says Yossi Pernick, head of marketing forthe brokerage of Meitav Dash, an Israeli investment house. “The regulation, the public eye, and the public criticism of listed companies doesn’t help companies to go public.”

The TASE’s struggle to sustain volumes is odd for a country that reliably produces some of the world’s most vibrant new companies in cybersecurity, biotechnology, and other growing high-tech sectors.

But most of these companies, once their founders or seed investors decide to exit, sell out to private equity or go straight to the Nasdaq, where Israel accounts for the second-largest number of foreign listings after China.

Few contemplate going public in Tel Aviv because of the onerous regulation the exchange imposes in areas such as disclosure.

This leaves the Israeli board dominated largely by family controlled conglomerates in traditional industries, whose share prices have sagged as lawmakers in the new Knesset elected a year ago pushed for more regulation. Israel Corp’s stock, for example, was hurt by a new government review of mineral royalties that could see Israel Chemicals’ tariffs rise.

Mr Beinart, a former CEO of the North American Derivatives Exchange in Chicago, was declining interview requests this week.

A report by the Israel Securities Authority published last year outlined some recommendations for reviving the market, which the CEO may now pursue. These included re-examining the exchange’s membership structure, opening it to new kinds of companies, and reducing capital gains tax.