Tel Aviv Bourse’s Big Day Dawns as Its Shares Jump on Debut

(Bloomberg) -- The Tel Aviv Stock Exchange has struggled for years with falling trade volume and burdensome regulation, but this week it hosts an initial public offering that could mark a turning point: its own. The shares surged on debut.

Nearly two years since it started its conversion to a for-profit company, shares in Israel's main bourse began trading Thursday, rising as much as 32% in Tel Aviv. That's after an initial public offering that was five times oversubscribed, mostly thanks to international investors who will get about 80% of the shares, said a person familiar with the process, asking not to be identified as the details aren't public.

“We hope that we paved the way for other Israeli companies seeking to issue on the Tel Aviv Stock Exchange with an offering that includes large international investment bodies alongside local investors,” exchange Chief Executive Officer Ittai Ben-Zeev said in a statement on Thursday.

Local interest in the IPO among Israelis may have been underwhelming, but the enthusiasm of international investors gives those behind the sale cause for optimism that the exchange will be able to expand listings and trading volumes. Drawing in more international investors and local tech companies could help the exchange reinvigorate activity and prominence.

“There's no doubt that the IPO here is another milestone in the way the Tel Aviv Stock Exchange is developing, ” said Shmuel Hauser, former chair of the Israel Securities Authority, who led the beginning of demutualization.

The deal was led by New York-based Jefferies LLC, and marks the first global equity offering for a company with Israel as its first listing. The exchange operator sold a stake of about 30% in the IPO, raising 225 million shekels ($64 million). The stock advanced 28% to 9.06 shekels at 1:34 p.m. in Tel Aviv.

Israel is the only Middle East market classified by index compiler MSCI Inc. as developed. That upgrade in 2010 has proved a mixed blessing, hurting trading as passive investors withdrew funds and Israel became a small fish in a big pond. Trading volumes are about 30% lower than a year before the status promotion.

Breeding Start-Ups

While Israel is a fertile breeding ground for tech start-ups, they often opt to list elsewhere, preferring New York or even Australia. That's because the local stock exchange is perceived as lacking liquidity and global visibility.

“People see it as local stories,” said Neil Corney, Citigroup Inc.'s country officer for Israel. “It is a bit of the chicken and the egg situation, but unfortunately the less liquidity there is in the market, the less likely it is for any investment companies to allocate analysts to cover Israel.”

The exchange is responding with new products and looser restrictions, including embracing remote members like Jefferies and Dutch market maker Flow Traders B.V., and allowing BlackRock Inc. to cross-list some exchange-traded funds.

It's also trying the unconventional: Last year, one of Israel's most-popular stand-up comediennes starred in short videos showing the benefits of investing in stocks, and this year the bourse announced a sponsorship of Israel's main soccer league.

‘More Than Symbolic'

“Sometimes Israelis are sour about the kind of opportunity that overseas investors understand better,” said OurCrowd Chief Executive Officer Jon Medved. “This is a sort of transformative moment that might focus the minds of Israeli companies.”

The bourse operator had net income of 21 million shekels in 2018 on revenue of 256 million shekels, according to financial statements posted on its website. The IPO has been in the works since the bourse sold a stake to New York-based investment fund Manikay Partners LLC in April 2018.

Thursday's listing “opens the local capital markets to global investors in ways they were not before,” said BlueStar Indexes Chief Investment Officer Steven Schoenfeld. “It's more than symbolic, it's a very real shift in what is possible.”

To contact the reporters on this story: Ivan Levingston in Tel Aviv at ilevingston@bloomberg.net;Filipe Pacheco in Dubai at fpacheco4@bloomberg.net

To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, John Viljoen, Alastair Reed

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