Israel’s stock exchange will sell a nearly 20 percent stake to New York-based investment fund Manikay Partners LLC, part of a quest to invigorate trading and attract more initial public offerings to the Middle East’s only developed market.
The deal values the Tel Aviv Stock Exchange at 551 million shekels ($157 million), according to a release from the bourse Monday. In addition to Manikay’s 19.9 percent stake, 21.8 percent will be sold to unspecified international investors.
TASE Chief Executive Officer Ittai Ben-Zeev said Manikay has broad experience in bourse management and was committed to using its expertise and contacts to help the Israeli exchange advance. He also said 30 percent of TASE shares will be sold to the public, most likely in the fourth quarter of the year.
“The Israeli public should benefit from the success and growth of the Israeli economy,” Ben-Zeev said in a statement announcing the sale plans. “Nothing could be more right than issuing a significant portion of the shares to the general public.”
Manikay founding partner Shane Finemore described the investment as a “long-term strategic partnership” with TASE management.
“We intend to make our experience available to them, both to help progress their IPO and to compete in the global exchange industry,” Finemore said by telephone. Ben-Zeev plans to take the TASE public next year.
In an interview with Bloomberg Television last month, Ben-Zeev said the exchange had drawn more than 10 bids for its sale, including some proposals to buy the entire controlling stake and several to buy minority positions. Israel’s Globes newspaper reported in February that stock exchanges from London, Hong Kong, Toronto, Australia and Singapore were among those interested in investing in the Tel Aviv bourse or cooperating with it.
On Monday, Ben-Zeev said it became clear as the process went on that the bourse could pursue collaboration opportunities without selling shares to a larger exchange, and that doing so might even limit its freedom.
The TASE still “intends to pursue strategic collaborations of different sorts with some of the bourses it’s in contact with,” Ben-Zeev said.
The lack of interest from foreign exchanges was a “disappointment” for professionals in Israel’s capital markets who were looking forward to the help in raising the TASE’s global profile, according to Steven Schoenfeld, founder and chief investment officer of BlueStar Indexes.
Ben-Zeev has overseen a revival of trading activity and share listings on the bourse, but Israeli technology firms, which account for most of the exchange’s large initial public offerings, “still don’t see the TASE as the first destination” for IPOs, Schoenfeld said. New ownership will likely craft “ambitious plans” to buck that trend, he said.
“Will these new investors accelerate the pace of innovation at the exchange?” Schoenfeld said. “That’s the hope, and we’ll see in the next few months.”
Seeking More Trade
The sale process aimed to boost the Tel Aviv exchange’s connectivity with foreign markets, helping to attract investors from abroad and improving liquidity. Average turnover in bonds and shares on the TASE rose 3 percent and 18 percent respectively in 2017, but activity remains lower than previous years, with equities trading still below levels seen from 2007-2011.
Trading volumes could expand further if more Israeli companies list shares in their home market, instead of opting to head for London or New York. Funds raised through Tel Aviv share sales have grown in the past three years, to $3.4 billion last year, but many local companies still prefer selling stock abroad.
In 2015, when Israeli companies raised the most capital in stock markets since 1992, businesses drummed up $10 billion through deals including dual listings, tender offers and private placements. Just $1.4 billion of that amount was arranged at home, data from the exchange show.
Creating the right conditions for companies to list both locally and abroad is a priority for the bourse, Ben-Zeev said. Major companies that have opted for dual listings in Tel Aviv include Teva Pharmaceutical Industries, Nice Ltd., Tower Semiconductor Ltd. and Magal Security Systems Ltd.
Israel in 2010 became the only market in the Middle East to win developed status from index compiler MSCI Inc., but the upgrade has proven to be a mixed blessing.
The country’s weighting in major benchmarks resulted in a smaller universe for passive investors. Volume dwindled as Israeli companies were forced to compete with those from the U.S., Europe, and Japan for fund managers’ attention and money.
The exchange responded by starting a program in 2016 to increase the amount of information available to investors to encourage trading. Unlike other markets in the Middle East, Israel also has an active derivatives market. With the sale plan, the bourse is aspiring to trigger a new phase of growth.
“The big challenge for the exchange going forward is how to ensure that Israel is on the map,” Schoenfeld said. “On the one hand, it’s been a challenge ever since it was upgraded to developed market status, and on the other hand, Israel’s economy has been doing great. The key is to solve that paradox.”