Bank Hapoalim to Sell Credit Card Unit in a Giant IPO

Bank sets aside another $246 million to cover costs of U.S. tax probe

FILE PHOTO: A man enters the main branch of Bank Hapoalim, Israel's biggest bank, in Tel Aviv, Israel.
Amir Cohen/Reuters

Bank Hapoalim said Sunday it plans to sell half its stake in its Isracard credit card unit to the public and list it on the Tel Aviv Stock Exchange to meet a deadline for Israel’s two biggest banks to divest their credit card operations.

Hapoalim, which controls 98.2% of Isracard, said in a statement it would hold a roadshow with investors in coming weeks, with a subsequent offering dependent on demand. No. 3 bank Mizrahi Tefahot, which holds the remaining shares, will not be selling any.

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A draft prospectus said Hapoalim planned to sell 100 million shares at 15 shekels ($4.13) each in blocks of 100 shares in what could be one of the largest sale ever on the Tel Aviv bourse.

The current price values Isracard at 3 billion shekels ($830 million), but sources said it could fetch a higher amount, and that anywhere between 30% and 70% of Hapoalim’s stake might be sold. A single investor would need to own at least 30% to receive a control permit from the Bank of Israel.

Hapoalim shares ended Sunday down 1% at 24.37 shekels.

Hapoalim CEO Arik Pinto said the credit card market in Israel had been growing steadily in recent years and at high levels relative to overall economic activity.

Hapoalim and chief rival Bank Leumi were given a 2020 deadline to divest their credit card subsidiaries under a new regulation designed to increase competition by prohibiting Israel’s two top banks from owning credit card firms. Last month, U.S. private equity firm Warburg Pincus completed its 2.5 billion shekel acquisition of Leumi’s credit card business and renamed it Max.

Hapoalim had sought a strategic buyer for Isracard, which based on the valuation at which the Leumi Card deal was done could have fetched 4 billion shekels, but talks with potential buyers reached a dead end.

In preparation for the offering, Isracard’s board declared a dividend of 867 million shekels, of which 851 million will go to Hapoalim, according to a regulatory filing. The bank will also transfer control of American Express Israel, which is now owned directly by the bank, to Isracard before the IPO.

Isracard is Israel’s largest credit card issuer, with an annual turnover of 155 billion shekels and accounting for 45% of credit card transactions. It has 3 million customers and has issued 5 million credit cards. In 2018, net profit rose 6% to 318 million shekels, while its consumer credit portfolio grew more than 24% to 3 billion shekels.

Following the offering, Hapoalim could sell its remaining stake to a single financial or strategic investor, hold another public offering or distribute the shares as a dividend, it said.

In related news, Hapoalim said Thursday it set aside an additional $246 million to cover a potential settlement of a U.S. investigation into possible tax evasion by the bank’s clients.

The provision, to be taken in the fourth quarter of 2018, will bring its total provisions to $611 million, or 2.29 billion shekels, Hapoalim said in a regulatory filing in Tel Aviv, noting it had held talks with U.S. Department of Justice officials as recently as March 5.

“It is reasonable to assume the total amounts which the bank will pay to settle with the American authorities, if achieved, will be significantly higher,” said Hapoalim, which has suspended dividend payments due to the uncertainty caused by the investigation.