Israel’s banks are gearing up to sell of much of their stakes in the Automated Bank Services Limited, better known as Shva, a divestment that could fetch them a combined 400 million shekels ($111 million).
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Four of Israel’s big five banks have stakes in the company and three of them will have to sell substantial portions of them to meet the new law on banking competition that bars them from holding more than 10% of Shva after a four-year deadline expires.
Because it has few dealings with the public, most Israelis are unaware of Shva. But the company plays a critical behind-the-scenes role in the banking and payments system as the monopoly company responsible for clearing all the country’s credit card payments.
The banking competition law, popularly known as the Strom law, requires the banks to sell down their stakes to make Shva less beholden to them, and also more open to providing its services for new players in the financial-services market that officials hope will emerge to compete with the banks as the law is put into effect.
The sell-off, which a valuation of Shva puts at 400 million shekels, could be done via an initial public offering of shares for trading on the Tel Aviv Stock Exchange, or in a sale to a single investor.
Alternatively, the banks might offer their excess shares to the credit card issuing companies that the same law mandates they spin off, although they would be limited to 10% stakes themselves.
The sale of the Shva shares marks another major financial company being put on the block due to government orders. Bank Hapoalim and Bank Leumi are both facing deadlines to sell their Isracard and Leumi Card credit card operations. Meanwhile IDB group must sell its Clal Insurance, and Delek Group is seeking a buyer for its Phoenix insurance unit to meet with other regulatory deadlines.
In the case of Shva, its bank shareholders are now in the process of merging the company’s Masab (The Bank Clearance Center), which clears fixed-order payments made from bank accounts and transfers salaries as well as providing back office services for pensions funds. They say there’s no reason Masab has to remain a separate operation.
Giza Singer Even, a consulting firm brought in to conduct an evaluation of Shva and Masab, valued Shva alone at 540 million shekels and its subsidiary at 160 million, in both cases nearly double their shareholders’ equity as of the end of 2016, or a total of 700 million shekels.
The company is now waiting for the Antitrust Authority to clear the merger. When that is done, the banks’ holding will be diluted but three of them will have to sell off a big chunk of their holdings. Leumi will have to sell a 28% stake to bring its holding down to 10% while Hapoalim will have to sell 22% and Israel Discount Bank 11% – at a combined value of 400 million shekels.
First International Bank of Israel will have just 5.4% of the merger company and Mizrahi Tefahot Bank just 3%.
Shva paid out a big dividend several years ago but it had cash totaling 275 million shekels as of the end of last year that could go toward another payout. Shva had revenues last year of 58.4 million shekels, a 6% increase over 2015, and earned a net profit of little less than the 14 million it generated in 2015.