Dan Margalit predicts $7-10 billion foreign investment during H107

Dan Margalit, managing partner at the BDO Ziv Haft accounting and consulting firm, agrees with Finance Ministry foreign Joseph Bachar: the year 2007 will bring a fresh influx of foreign investment.

Speaking at TheMarker-Migdal Capital Markets conference, taking place on Monday, Margalit predicted that foreign investment in Israel would be in the range of $7 billion to $10 billion in the first half of 2007 alone, through the acquisition of Israeli companies listed on Wall Street caught in accounting trouble, and acquisition of privately held companies.

Margalit presented two reasons for his optimism, one being the large amount of money available for investment abroad, and the other the good alternatives available in Israel.

He also noted the growing preference among foreign investors to invest in companies ahead of a public offering, but set to float in about a year or so. Another trend Margalit noted is a return to investing in "old-economy" companies, not only hi-tech.

Margalit also risked predicting that at least 20 foreign companies would try to raise money locally in the first half of 2007. Malibu, a new arrival on the Tel Aviv Stock Exchange, is just the harbinger, he predicted. Israeli interest rates remain relatively attractive, which in combination with Israel's high credit rating, attracts companies to raise money here. Even the war ultimately served as a positive catalyst, in that it demonstrated how compartmentalized the damage had been. Though the war was mere months ago, in July and August, the picture today is better than it had been beforehand, Margalit said.

In fact, Margalit revealed that a German real estate company is planning to tap the Israeli market for NIS 150 million. If it were to carry out its offering in Germany, it would be considered small-scale and its costs would be higher.

He added that three or four Israeli companies listed on Wall Street would apparently be dual-listing in Tel Aviv, and might choose to raise money, too.

Moving on, Margalit turned to other markets. Israeli companies were tending more to seek alternatives as U.S. regulators crack down on Wall Street and because of Sarbanes-Oxley, he said. Mainly, they were heading for London, most notably to the AIM market. At least 12 Israeli companies worth more than a billion dollars combined, floated in London this year. At present the Ziv Haft firm feels a slowdown in the race to London, he said, one reason being that the market raised the minimum company valuation for floating from $70-80 million to $120-150 million. Another reason for the deceleration is disappointing results compared with the results based on which the companies raised money in London.

But a vacuum doesn't stay around and now Israeli companies are looking at alternative markets in Canada and Hong Kong, Margalit said. Regulation is more convenient there, the accounting standards are international ones, and market valuation starts at $70-80 million, as had been the case in London. A company could raise as little as $20 million if it chose, he said.

One of the reasons for the comfortable terms is that most of the companies on these markets are local, and the investors there want to expand their horizons, Margalit explained.

But he cautioned that while the markets there may not be that selective, that doesn't mean they suit any company. "Hong Kong is good for companies that work in the Far East, and Canada is appropriate for companies that work in North America," Margalit said. "In any case, it is less recommended for companies that operate only in the local market."

He believes  we'll be seeing the first Israeli flotation in Hong Kong soon, during the first quarter of 2007 or possibly the second one. The process could take three to four months, not including the road show in the target market.