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Abu Dhabi Development Holdings (ADQ) announced last week that it would acquire control of Israel’s largest insurer israel phoenix insurance co., ltd. (grade:PHOE1; PHOE5) continued to make waves on the Tel Aviv Stock Exchange (TASE).
It is difficult to judge whether local regulators will allow US funds Centerbridge and Gallatin Point Capital to sell a 25 percent stake to ADQ. If the deal goes ahead, it will be worth NIS 2.3 billion, reflecting Phoenix’s corporate valuation of NIS 9.2 billion.
There are also those in the capital markets and the Israeli public who oppose the deal, arguing that at the very least, restrictions should be tightened on any new owners of insurance companies that manage more than NIS 370 billion in assets, the vast majority of which is Israel’s public savings.
A senior capital markets manager said, “If I were the head of the capital markets, insurance and savings department of the main regulator that needed to approve the deal, I would either not approve it at all or do it under very strict conditions. Conditions, more than regulatory The regulations are much stricter.
He referred to the Circular on “Directors of Public Organizations”, which currently says, among other things, that the chairman of the board of directors does not have to be Israeli or even permanently resident in Israel. But the veteran capital markets manager said the conditions must be tightened to protect the interests of depositors, adding that the chairman and majority of board members should be Israeli. He also insisted that compliance with another condition defined in the same notice must be ensured, namely that all members of the company’s investment committee must possess Israeli citizenship, reside in Israel and be fluent in Hebrew.
Regulators could help reduce foreign involvement in other regulators, such as the Bank of Israel, on money laundering concerns, and the Israel Securities Authority (ISA), because Phoenix owns a company that manages its portfolio and mutual funds, he said.
“The main concern is the ability to prevent foreign organizations from interfering in the management of investments in a way that skews investments in a direction that matches the overall policy of that governing body. Frameworks can be constructed and activities defined to prevent this bias,” he said. But since (ADQ) is a government fund, it complicates things. In anything they seek to intervene, as someone who knows the capital markets very well, I know that foreign institutions tend to intervene, and it will immediately be political, And portends the danger of a diplomatic crisis.”
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He likens the restrictions imposed on any sourcing firm to trying to trap water in a pool, which is always looking for weak spots to flow out. “No matter how much they think ahead about how to prevent disruption, those who want to intervene and control the levers of pressure can do so. It’s hard to plug all the holes. On the other hand, if a company buys another company, you can’t tell them it’s prohibited Or that banned because they ask themselves what they get out of the investment they made? It’s impossible to fully counteract their influence because they’re the controlling party, so there’s a limit.”
The stakes are especially high in a small market like Israel
Of course, attempts by controlling shareholders to influence the behavior of financial firms under their control are not only relevant to foreign controlling shareholders. Recalling Nochi Dankner’s control of IDB and Clal Insurance more than a decade ago is enough to understand that the risk of a domestic controlling shareholder intervening in a market as small as Israel may be greater.
However, unlike Israel’s internal meddling power relationship between controlling shareholders and investment committees, which are supposed to be kept completely separate from boards and management, any disagreement could have geopolitical overtones when it comes to funds controlled by foreign governments.
“On top of that, ratifying the deal is dangerous, not only in terms of trying to interfere with the investment, with all the restrictions that would be imposed, but also because of the explosive potential that could lead to a deterioration in relations between Israel and Abu Dhabi. But it is clear that the incoming Prime Minister Benjamin Netanyahu’s interest in the matter is a sign that the Abraham Accords are bearing fruit. “Obviously there will be pressure from both buyers and sellers. U.S. funds ask if Israel is a free market only when you can buy, but it’s not a free market anymore when you want to sell,” said the veteran capital markets manager. “I don’t know who There will be heads of capital markets, insurance and savings (currently Amit Gal is deputy head), but they will have to be very tough to withstand all this pressure. “
“Change doesn’t happen in a day, it seeps in”
Immediately after the announcement of the signing of the memorandum of understanding to buy control of Phoenix, a politician told The Globe that the decision to approve the deal should be made at the political level, not by regulators, due to the interests of the Israeli government . Fulfilling the UAE’s commitment to invest $10 billion in Israel.
“If it was a private company from Abu Dhabi, it would probably have been dealt with professionally and there would probably be no reason to disqualify it, just as they did not disqualify the US fund that controls Israel,” the senior politician said. …the insurance group today. But considering it’s a government owned fund, it’s easier to do bad things and say no up front. Will that help? I’m not sure.
“But can the UAE really change Phoenix’s DNA? Redirect investment or block reform? Phoenix has very good people today. But what happens if they change tomorrow. The terms of investment committee members will end and new ones may be appointed. Pressure from directors and outside board members. Everything can change. When a business is sold and a new controlling owner arrives with a different organizational culture, change doesn’t happen in a day, but it seeps in. Buyers There’s no need to make drastic changes, it’s enough to send an invisible message, let people in the organization understand what the commander wants, and it’s smooth sailing.”
“Abu Dhabi funds don’t need savings”
On the other hand, a former financial services executive familiar with situations between insurers and regulators was less concerned about the identity of potential buyers than parties with previous interest in Phoenix, such as Chinese investment funds. Less. “The fear of the Chinese is that they will try to divert depositors’ funds to uses that are convenient for them, but not for Israeli depositors. This is not the case here. Abu Dhabi funds don’t need funds, they have excess funds Funding, so it’s just the opposite — they’re going to want to invest.
“That’s why I’m not worried that they’re going to put the money to bad use or that they’re going to pull it back. The only thing that could happen is they want to be in Phoenix as a co-investor, and I don’t see anything bad about that .It will increase engagement with the state of Israel for all parties that we want to engage. These funds bring knowledge and connections that Phoenix can build on, so there are benefits to this deal as well, not just worries.”
According to the executive, the question is not whether to grant permission, but under what conditions. “In any case, the insurance regulator has the power to intervene in the situation of insurance companies from now until further notice, and if they are vigilant enough, they will be able to ensure that no wrongdoing occurs. I have also heard about the use of customer information. A company or any other body that has control over a person does not have personal information, but only in an aggregated form that does not allow identification.”
Published by Globes, Israel Business News – en.globes.co.il – December 21, 2022.
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