The announcement thatthe phoenix the largest insurance company in Israel in terms of value, may soon come under the control of an investment fund of the Abu Dhabi government, continues to make waves in the local capital market.
● Not only insurance and finance: Phoenix provides access to the Israeli economy
● Estimates: The new government will push for approval of the Abu Dhabi-Phoenix government deal Surgery
● Who is the giant fund from Abu Dhabi that is buying the Phoenix company and who else is in the sights? | Interpretation
At the moment it is difficult to estimate whether the deal will be approved, in which the control of Phoenix (25% of the shares) will be transferred from the American funds Centerbridge and Gallatin Point to the consortium led by the ADQ investment fund. According to the transaction, the control will be sold for approximately 2.3 billion shekels, which reflects a value of 9.2 billion shekels for Phoenix.
However, it already has opponents in the capital market and in the public, and alongside them are those who claim that at the very least, the restrictions placed on those who may be the new homeowners in an insurance company that manages more than NIS 370 billion in assets, the vast majority of which are savings funds of the public in Israel, should be tightened.
“If I were the head of the Capital Market Authority today, which is the main factor that needs to approve the transaction, I would either not approve it at all or I would approve it subject to very strict conditions, much more than those established by the Authority,” says a senior manager of the capital market.
In his words, he refers to the “Institutional Body Board of Directors” circular, which as of today states, among other things, that the chairman of the board of directors does not have to be Israeli, nor does he have to live in Israel as his permanent residence. According to the same source, in order to protect the interests of savers, the conditions must be tightened and it must be established that a The board of directors must be Israeli, as must the majority of the board members. In addition to his words, it is necessary to ensure compliance with an additional condition that is indeed defined in the same circular, according to which all members of the investment committee in that company must have Israeli citizenship, be domiciled in Israel and be proficient in the Hebrew language.
In addition to these tools, some of which are already in use, the Capital Market Authority can be used for the purpose of reducing foreign interference in additional regulators, such as the Bank of Israel, with regard to concerns about money laundering, or in the Securities Authority since the Phoenix owns a company for managing investment portfolios and mutual funds (Casem).
“The main concern is about the ability to prevent the intervention of a foreign party in the management of the investments, in a way that will tilt the investments in a direction that will match the general policy of that governing body. It is possible to frame and define an activity to prevent such a bias, but since this is a government company, it complicates the matter. Everything “If they ask to intervene, and as someone who knows the capital market closely, I know that foreign bodies have tended to intervene, it will immediately take on a political color and signal danger from a diplomatic crisis,” he says.
As for the limitations that will be imposed on the purchasing body, he compares them to trying to trap water in a pool, which will always look for the weak point to flow out. “No matter how much they try to think in advance how to prevent interference, those who want to intervene and have the levers of pressure – can get what they want. It’s hard to close all the loopholes. On the other hand, if a body buys another body, you can’t tell them ‘it’s forbidden’ and ‘It is forbidden’, because then he will ask himself what he gets out of the investment he has made. It is impossible to neutralize him from influence completely because he is the controlling party, so there is also a limit to limitations.”
In a small market like Israel the risk is particularly high
Of course, attempts by controlling owners to influence financial entities under their control are not attributed only to foreign controlling owners. It is enough to go back to the control of the IDB concern during Nochi Dankner’s time over Clal Insurance in the previous decade, and to the support of the insurance company in Dankner’s other businesses, to understand that the risk of the intervention of a local landlord in such a small market as Israel, may be much greater.
However, unlike Israeli internal interference in the power relations between the controlling owner and the investment committee, which should be completely separated from the board and management, when a fund controlled by a foreign government is involved, any disagreements may have a geopolitical tone.
“The bottom line is that it is dangerous to approve the deal, not only in terms of trying to interfere in investments, with all the restrictions that will be imposed, but because of the explosive potential that could lead to a deterioration in relations between Israel and Abu Dhabi. It is clear that the incoming Prime Minister, Benjamin Netanyahu, has an interest in this matter – to show that the Abraham Accords carry fruits.
“Obviously there will be pressure from the buyer as well as from the seller. The American funds will ask if Israel is a free market only when you can buy, but when you want to sell – then it is no longer a free market?”, adds the senior manager. “I don’t know who will head the Capital Market Authority (currently Amit Gal holds the position as deputy, RA), but he will have to be very strong to withstand all these pressures.”
“Change doesn’t happen in one day, but it permeates”
We will recall that immediately after the publication of the signing of the memorandum of understanding between the parties in Phoenix, a political official said in a conversation with Globes that the decision whether to approve the transaction should pass from the clerical level, i.e. the Capital Market Authority, to the political level. This is in view of the Israeli government’s interest in fulfilling the Emirati commitment to invest 10 billion dollars in Israel.
“If it was a private company from Abu Dhabi,” says the senior official, “it could have been transferred through the professional channels and apparently there was no reason to disqualify it, just as they did not disqualify the Americans who control the Israeli insurance group today. But given that it is a government-owned fund, it is easier to be bad and say Not in advance. Will this one help? I’m not sure.”
How far can the Emiratis really change the DNA of the Phoenix? Direct investments and oppose reforms? According to the executive, “There are very good people in Phoenix today. But what will happen if tomorrow they change, the term of the members of the investment committee ends and there is pressure to appoint new directors or CEOs? Everything can change. When a business is sold and a new controlling owner arrives with a different organizational culture, the change does not happen in one day, but slowly it permeates. It is not necessary for the buying body to make dramatic changes, it is enough that it transmits invisible messages so that people in the organization understand what the commander’s spirit is, and align themselves with where the wind is blowing.”
“The fund from Abu Dhabi does not need the money of the savers”
On the other hand, a former finance executive who knows well what is going on between the insurance companies and the regulator, is less worried about the identity of the potential buyer, compared to previous interested parties in Phoenix, such as Chinese investment funds. “The fear with the Chinese was that they would try to divert savers’ funds to uses that are convenient for them, but not good for Israeli savers. This is not the case here. The Abu Dhabi fund does not need funds, they have excess funds, so the situation is the opposite – they will want to invest.
“That’s why I’m not afraid that they will divert funds to bad uses or that they will attract funds. The only thing that might happen is that they would want to participate as a co-investor in Phoenix’s investments, and I don’t see anything bad in that. It will increase the involvement of the State of Israel by parties we want to be in contact with. These funds bring knowledge and connections and the Phoenix can be built on that, so there are also benefits in the deal and not just concerns.” According to him, the question is not whether or not to give a permit, but under what conditions. “In any case, the insurance supervision has the right to intervene in what is going on at the insurer from now until further notice, and if they are vigilant enough they will be able to make sure that nothing inappropriate happens. “I have also heard concerns about the use of the insured’s information. Those who have control over an insurance company or any other institutional body (as opposed to the company itself, R. V.), do not have individual information, but only in an aggregated manner that does not allow identification.”
The challenges facing the Capital Market Authority
- Preventing foreign funds from interfering in the management of investments, and ensuring that savers’ money is not diverted in unwanted directions
- Safeguarding the private information of Phoenix policyholders
- A guarantee that the foreign funds will be subject to the provisions of the Israeli regulation
- Leaving the disputes within the framework of supervisor-supervise relations to avoid diplomatic incidents
- The tools required to strengthen the security of savers
- An all-Israel investment committee without foreign representatives
- An Israeli majority on the board, including an Israeli board chairman
- Various accounts for the members’ funds and the company’s nostro funds
- Assistance from additional regulators