Israel poised to launch defence privatisations in months, says government official

Israel plans to begin the long-awaited privatization of two of its largest defence companies as early as the second quarter of this year, a senior government official said.

Roi Kahlon, director of the Government Companies Authority, said union and regulatory issues should be resolved in the next few months to allow initial public offerings by Israel Aerospace Industries (IAI) (ISRAI.UL) and Rafael Advanced Defense Systems in the second quarter.

Defence privatisation has been discussed on and off for the past 20 years, but robust financial results bolstered by Israel’s two-year war with Palestinian militant group Hamas in Gaza have strengthened the case to act now.

COMPANY STAKES TO BE SOLD IN SMALL TRANCHES, OFFICIAL SAYS

The government plans an initial sale of 25-30% of each company on the Tel Aviv Stock Exchange in small tranches this year and next to avoid overwhelming the market and to retain controlling stakes for now.

“If you want to maximise valuation of the sale, we must make it in steps,” Kahlon told Reuters, adding that the companies and Defence Ministry were in agreement on this.

IAI, which makes missile defence and unmanned aerial systems, is valued at about $20 billion. Rafael, which makes the Iron Dome anti-missile system as well as a new Iron Beam anti-missile laser, is valued at about $10 billion.

“We have an opportunity now … because of the high value of both companies,” Kahlon said.

Accountant General Yali Rothenberg said in November that plans to privatise IAI were taking shape after a ministerial panel approved a plan to sell up to 49% through an IPO.

Rafael has also begun IPO preparations, Kahlon said, citing discussions with company officials and the company’s desire not to hand any advantage to rivals.

A Rafael spokesperson declined to comment.

IAI Chief Executive Boaz Levy told Reuters an IPO is crucial to the company’s expansion plans. “We should look toward the future,” he said. “It’s very important for the company because (IAI) needs to grow.”

Private ownership will also free the companies of bureaucracy that can hamper decision-making, Kahlon said, pointing to the success Israel Military Industries since it was bought by Elbit in 2018. IMI is now valued at four times its 1.8 billion shekel ($571 million) purchase price, he said.