Taking Stock / The Better Option

We haven't even had a chance to digest the results of El Al's leap onto the market - who got in, how much, who will control the airline, who will appoint its director, and mainly where the whole thing is going. Yet, this week, the director of the Government Companies Authority, Eyal Gabbai, announced that Bezeq is next in line.

The finance minister and GCA people have certainly delivered the message that they are dead serious about pushing Israel's languid privatization out of the mud. With El Al's offering, they proved they can deliver the goods.

But there is a reason for the haste with which the Finance Ministry people rushed to announce more public offerings, without discussing the lessons of the one carried out just yesterday. Namely, El Al cannot serve as a model for privatization. The results of the offering are still not clear; at this stage, we can talk about an option of privatization at most.

The most important element of El Al's offering is that the combination of low value with a large amount of warrants enabled participants to buy the option of becoming major players in the carrier, at a small investment.

Orders were small and the offering closed at the minimum price, testimony to the unhappy condition of the business sector; to the credit crunch, to the inaccessibility of capital, to the fact that most leading market animals - from tycoons to institutional investors to corporations - are sitting tight.

In the normal course of events, an offering like that would have everybody clambering out of their holes to snatch a piece. To invest peanuts for options to be involved in a giant like El Al would have whetted the imaginations and appetites of many first-class aficionados.

Yet, it transpires that only two strategic investors spent significant sums on shares at the offering, and the only one to invest many millions of dollars was its biggest rival, a company that could hardly afford not to have an option to be involved in the carrier - Arkia, belonging to the Borovitch family.

The paucity of demand at the El Al issue shows another thing about the change in attitude among the market players. The concept that anybody could invest in any company if he has the cash or bank credit is dead.

Even though small amounts of money would have sufficed for a leg into the monopolistic aviation giant, it turns out that only someone knowing the business inside out, with experience of decades in aviation, was willing to take the plunge.

The days are over when any investment firm, any financier, any market player hoping for a mention in the press, would try to get a foot into a firm, whether or not they had a clue what it did. If the Borovitch family ultimately manages to take the reins at El Al, or become involved in its management, it is just a matter of time before critics will come to life and wail that the state allowed another family to seize a national asset for a bowl of lentils.

It's true, too. The Borovitches now have an option to become an interested party in the giant corporation by investing very small sums, relative to the family's investment in other firms such as Sonol, Tambour and Maman Cargo Terminals & Handling. But keep in mind that the option had been open to every single player in the marketplace, and the bottom line is that nobody bit, except them.

Which is a major advantage of the government's latest method of privatization. The fact that 100 percent of the shares are issued through an open tender, including a major proportion of warrants, makes the entire process of selling government companies much more equitable and transparent. The previous methods of the past 15 years, of open or closed tenders, were much less so.

In any case, the Borovitches do not yet control El Al. At most, they have an option for the option to be involved in its control. We may assume that, in the months to come, all the players involved in El Al will be calculating their next steps very carefully.

The Borovitch family will want to see if it can reach agreements with the airline's workers enabling structural changes. Because, unless it becomes more efficient, El Al will never be able to service its massive debts to the banks.

On the eve of the company's flotation, the government capitulated to all the demands of the employees and banks. It paid through the nose in order to get the offering launched, leaving the mission of rehabilitating the airline to the market.

Izzy Borovitch hastened to say Wednesday that the banks breathed easier when they learned that his company, Knafaim-Arkia Holdings, was the main buyer at the offering. But that doesn't mean there won't be future attempts to reach an "arrangement" with the banks.

Keep in mind that the offering's structure, which makes it very hard to carry out a complete takeover at this stage, resulted from the terms dictated by the banks - mainly, Bank Hapoalim.

Although Finance Minister Benjamin Netanyahu and Gabbai are already talking about their next privatization endeavor, that of El Al has barely begun. The government, the regulators and the banks, some of which are controlled by the state, will still be deeply involved in the process of curing the company's ills and detaching it from the state's apron strings.

And some of the challenges El Al faces, such as maintaining its competitiveness and becoming more efficient, are no less great than publishing a prospectus and selling itself on the market.