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Gas change-of-mind has blueStar, artemis dubious: Israel markets

29 December 2014 16:18 (UTC+04:00)
Gas change-of-mind has blueStar, artemis dubious: Israel markets

By Bloomberg

Foreign investors are starting to abandon Israeli stocks after the antitrust regulator backtracked on an agreement underpinning the country’s largest energy project.

The Tel Aviv Oil & Gas Index fell to the lowest in more than two years on Dec. 23, the day the regulator said it would reconsider a March 2014 agreement to let a partnership retain its stakes in Israel’s two largest natural gas reserves. The announcement echoed last year’s government policy change on potash royalties that sent Israel Chemicals Ltd.’s shares tumbling.

“Investors with other places to put their cash may say it’s not worth the effort, let’s invest our money elsewhere,” Bruce Schoenfeld, research director at New York-based BlueStar Global Investors LLC, said by phone Dec. 24.

The concern about regulatory shifts threatens to cloud the outlook for a market struggling to boost trading after MSCI Inc. upgraded Israel’s status to developed from emerging markets in 2010. Foreign investment in equities for the first 10 months of 2014 was $1.05 billion compared with $695 million in all of 2013, though it’s still 40 percent lower than the $1.75 billion figure for all of 2009, according to the Bank of Israel. Average equity daily trading volumes dropped 27 percent in 2013 from 2010, and were down 2.4 percent in 2014 through Dec. 25, data compiled by Bloomberg show.

Recovery At Risk

The regulator’s decision “puts the recent recovery in trading volume at risk,” Steven Shein, an equity trader at Psagot Investment House in Tel Aviv, said by phone on Dec. 25. Orna Goren, a spokeswoman for the Tel-Aviv Stock Exchange, had no comment.

Last year’s figure for foreign investment came amid investor concern over the regulator’s decision to re-examine government policy on royalties and taxes paid by companies that use natural resources. Shares of Israel Chemicals, which harvests potash from the Dead Sea, have declined 29 percent since the June 16, 2013 decision.

“Israel is increasingly impossible to invest in,” Jacob de Tusch-Lec, who helps oversee 19 billion pounds ($30 billion) in equities at London-based Artemis Investment Management LLP, wrote in an e-mail Dec. 25.

“The regulatory and political environment over a number of years in different sectors has provided a changing, challenging and inconsistent environment,” he said, adding that he has decreased investments in the country.

Mark Schon, a spokesman for the Jerusalem-based Israel Antitrust Authority, declined to comment on Dec. 25 other than to say that investors around the globe are obliged to comply with antitrust laws.

Fair Prices

Israel’s two largest natural gas pools, Tamar and Leviathan, developed by Delek Group Ltd. and partners that include Noble Energy Inc., hold an estimated 33 trillion cubic feet of gas.

Authority head David Gilo last week noted that the companies control the majority of the country’s gas resources and that he is now reconsidering a previously proposed agreement that he says doesn’t resolve the problem of their monopoly.

Avishay Braverman, a Labor legislator on the parliamentary economic affairs committee and a former World Bank divisional head, said the gas companies were overcharging. Subjecting them to regulation was the only way to ensure fair prices.

“This decision is a U-turn and we don’t know where this is heading,” Gideon Tadmor, Chief Executive Officer of Avner Oil Exploration LP, a partner in the gas development, told Israel Radio on Dec. 23.

The Ministry of National Infrastructures, Energy and Water Resources refrained from taking a “principled position” on the earlier agreement with the natural gas partners, Gilo said in a letter to the ministry’s director general today.

The ministry said in response that it regrets the Antitrust Authority decision taken “without government assessment of all the consequences.” It intends “to give true, responsible and professional solutions in order to promote the natural gas sector in Israel,” it said in a statement.

Shares Plunge

Shares of Delek Group plummeted 9.2 percent from Gilo’s Dec. 23 decision to the Dec. 25 close. Delek Drilling LP plunged 8.2 percent in the period, while Avner and Ratio Oil Exploration 1992 LP have dropped 4.7 and 7.8 percent, respectively. The yield on Delek Group’s 4.65 percent sinkable bond due November 2022 soared 54 basis points in the period.

All the shares were gaining today, but had yet to recover last week’s losses. The TA Oil & Gas Index was little changed at 1,063.65 at 1:32 p.m. in Tel Aviv.

Ori Licht, head of research at Israel Brokerage & Investments, said the shares have a “particularly volatile” future.

“This just highlights the capricious nature of Israeli regulation,” BlueStar’s Schoenfeld said on Dec. 24. “It seems like their statements and policies are not that well thought out and it makes it harder to value companies.”

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