The Government Companies Authority this week announced that privatization of the Israel Foreign Trade Risk Insurance Company (IFTRIC) is off. The process was canceled because the only two bids for the company were lower than IFTRIC's estimated value, said the authority director, Yaron Jacobs.
The companies that bid were no fly-by-nighters. These are consortia, that operate in the field, respected groups of strategic investors that satisfy all the criteria. One group was the Israel Phoenix Assurance company, Bank Leumi, Migdal Insurance, Business Data and COFAS. The second consortium included Clal Insurance, Poalim Assets, Namur Re, Israel Land Development and IGB. Both of these are respectable groups indeed.
IFTRIC covers Israeli exporters against political and trade risks incurred through exporting, and it has penetrated 57 percent of the short term market (the part that was up for sale). Talks about IFTRIC's privatization have gone on for years, so why not privatize now when there are two potential buyers?
"Because the offer price was lower than the estimated value," says Jacobs, illustrating how very problematic it is to put a political appointee in an economic position. An economist would know that "lower than estimated value" is a meaningless phrase. At any moment a company could have a different price tag, with the going price being whatever the buyer is willing to pay, irrespective of any theoretical estimated value.
For example, today with the U.S. fighting a war against terror in Afghanistan, insurance risks have gone up and therefore the value of any company in this sector has dropped. And in any case, there is an additional benefit of privatizing any state-owned company, much more than its price, and that is that the fewer companies under the state's and Jacobs' belt, the more the private sector will grow and flourish.
But then in as much as banks Leumi and Israel Discount were not privatized up until the last moment, so Jacobs and the government ministers above him prefer to pay lip service rather than to actually privatize. For if he should privatize quickly and efficiently, without any bloated value estimations, how can he go on with the never-ending sale? How will he be able to issue press releases twice a week on his latest considering, checking, investigating?
And if he should get round to privatizing the Israel Electric Corporation, then the situation would be much much worse, because he wouldn't be able to object to the change to nominal accounting. Today he threatens to take the Israel Accounting Standards Board to court because it has insisted that the electricity utility report in nominal fashion (along with all other companies), and that does not look good for the IEC.
Now from an accounting view, changing to nominal financial statements may be the correct thing - as it is done the world over - and maybe Jacobs has no particular stand on the matter, but he couldn't miss another opportunity to issue a flurry of statements to the press that he is considering, checking, investigating the matter.
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