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Formula's last share issue went ahead without underwriters due to a time schedule crisis, with the company's prospectus receiving the Securities Authority's approval only the day before the last date possible if the company wanted to proceed before the release of its next quarterly report. Despite the harsh market conditions, the success of the share issue, led by the IBI investment house, raises the question of whether underwriting is essential. Dispensing with such services, the issuing company can save around 1 percent of the sums raised.

Formula was not alone. Others - Bank Leumi, the Israel Electric Corporation and Bank Hapoalim - have issued shares without underwriting their offers. The absence of underwriters could reflect one of two situations - the issuing company doesn't want them, or the potential underwriters aren't interested. Formula's case was exceptional, as both parties wanted underwriters, but time pressure wouldn't allow for it. The Israel Electric Corporation argues in favor of the savings made, while the banks cannot use their own underwriters for their issues, and certainly aren't interested in offering their rivals the work.

Underwriting carries two responsibilities. One is the guarantee to take up any unsold stock in an offer. This could be costly; for example, the case in which Ilanot Betuchah was left to mop up 29 percent of unsold stock offered by Tamir Fishman Ventures.

The heavier responsibility lies in the prospectus itself. The underwriters carry the can - in both civil and criminal terms - for the accuracy of the prospectus, and there are a number of lawsuits pending against underwriters on this matter.

One source in the field said that in overseas markets, it is generally the weaker companies that issue stock without underwriting the issue, as one assumes they have something to hide and are not keen to come under close scrutiny. They could even suffer an embarrassment if the underwriters decide not to sign the prospectus or undertake to buy up the unsold stock.

In Israel though, the picture is quite different, according to the source. Here, it is the larger, more secure companies that can afford to go it alone and issue stock without official underwriters. Small firms would not be able to succeed, he says.

Nevertheless, underwriters are called in to help with the pre-launch campaign, working alongside institutional players, fund managers and authorities, and taking a fee that is usually around 2 percent for the coordination, consultation and distribution.

One small company that managed to prove the exception, was Isras, controlled by Shlomo Eisenberg. Due to a court case, Eisenberg had won some bad press, and the financial institutions were giving him a hard time, refusing to be listed in the prospectus as institutional buyers of the stock. They were in no hurry to sign Isras' prospectus. So Eisenberg changed the prospectus, slashed the underwriters fees and increased distribution fees for the stock. The share issue was a success.