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Bank Leumi may be forced to sell its holdings either in the Paz fuel vendor or in The Israel Corporation, which is making moves to buy a 33% stake in Paz. The Bank of Israel will be discussing Leumi's status under the banking laws that govern non-banking holdings by banks.

The discussions, headed by the supervisor of banks, will focus on whether owning stakes in both Paz and in the Israel Corporation would mean Leumi is violating the law forbidding a bank from owning more than 20% percent of a non-banking company.

One question is whether Paz will be defined as a corporation rather than a company following its agreement last week to buy the Ashdod oil refinery, which enlarges its field of operations from gas stations to gas production.

Precedent shows that Bank Leumi had to sell its stake in Migdal, because it also had stakes in a variety of other operations. If Paz is redefined as a corporation, the central bank may demand that Bank Leumi sell its stake in it, or in the Israel Corporation.

If the answer is negative, the second question that the bank will examine is whether Bank Leumi has exceeded the 20-percent limit in its stake in Paz, which it holds both directly and via the Israel Corporation. If the entry of the Israel Corporation into Paz does not involve a dilution of Bank Leumi's stake, it will hold 19 percent of Paz directly and a further 7 percent via the Israel Corporation. As far as the Bank of Israel is concerned, this is unprecedented.

Under the merger deal, the Israel Corporation will by 33 percent of Paz shares for $300-400 million. The possibility has been discussed that shareholders' stakes will be diluted, mostly those of the controlling group headed by Zadik Bino and Bank Leumi. As a result of this, Leumi holdings in Paz would be reduced from 19 percent to 13 percent.

Bank Leumi said in response that the banking law does not cover holdings which are not held directly, so that even if the bank's direct and indirect holdings in Paz exceed 20 percent, it will not have to sell the excess.