Presentation before the

1

Israel Government Companies Authority
The Privatization Process in Israel

• Presentation before the
• International Monetary Fund
• December 2003

2
Privatization as a Policy

• A macro-economic tool used to enhance the
  economic activity in the market.
• Decreases Government involvement in production.
• Privatization via the stock exchange
• Increases the activity in the local stock
  exchange
• Decreases the centralization in the market.

3
The Privatization Policy

• The Government of Israel decided, as part of Its
  comprehensive new economic plan, on a vast
  privatization policy
• To privatize government owned companies in a sum
  value of 7 billion NIS (1.5Bln) during the
  years 2003-2005 mainly through the stock
  exchange.
• The companies to be privatized are the strong
  companies that are the core of the economic
  activity in the Israeli market
• EL-AL, Bezeq, IEC, ORL, IAI.

4
El-Al Israel Airlines Ltd.

• On June 10, 2003 the State offered 100 of the
  company shares to the public.
• The IPO took place in the TASE.
• 100 of the shares are currently floating in the
  TASE, by way of shares options.
• The IPO structure allows the opportunity to
  create a controlling interest through the capital
  market.

5
El-Al Israel Airlines Ltd.

• El-Al is Israel's National Air Career.
• El-Al was the first airline to be IPOed post
  9/11.
• The company was IPOed at a market value of
  113M, with a debt of 900M.
• The IPO took place at a very difficult time for
  the company, the Airline Industry the Israeli
  market (9/11, 2nd Intifada, 900M debt).
• The IPO was a SUCCESS, and the share option
  trading prices in the TASE are currently deep in
  the money .

6
Bezeq Israel Telecommunications Corp. Ltd.

• Bezeqs shares are publicly traded on the TASE.
• Since 1998 the Bezeq privatization process was
  stuck, due to resistance of the Security Services
  to selling via the stock exchange and to lack of
  interested parties in buying a controlling block
  of 50.01 (the former government resolution).
• During the last few months we negotiated with the
  Security Services and won their approval.

7
Bezeq Israel Telecommunications Corp. Ltd.

• A new Government resolution was decided on
• All but 1.01 of the Governments assets in the
  company will be sold
• Through the stock exchange prospectus and/or
  block trades
• 30-40 a strategic block by private sale.
• The GCA recently sold 9.4 of Bezeq via two block
  trades, raising 1.1Bln NIS.
• The second block trade of 5.75 (11/2003), was a
  great success the sale price was 2 premium
  over the market price, and it was the biggest
  block sold in Israel.

8
Bezeq Israel Telecommunications Corp. Ltd.

• The Government lost control of Bezeq, converting
  the company to a mixed company.
• The Government currently owns only 49.1 of Bezeq
  and a prospectus is being drafted.

9
Ashot-Ashkelon Industries Ltd.

• A subsidiary government company, of Israel
  Military Industries Ltd.
• The Company is traded in the TASE.
• There is currently a procedure for a private sale
  of Ashot.
• A successful privatization of Ashot will be a
  milestone the first privatization of a defense
  industry company.

10
Zim Israel Navigation Co. Ltd.

• The State holds a minority stake in Zim The
  State (48.6), The Israel Corp. (48.9).
• The previous privatization process of the State
  holdings in Zim did not attract interested
  parties.
• A new Government resolution was designed to
  encourage the sale
• Allowing the acquisitor of Zim to split the
  company into - Zim International, Zim Israel.
• The Special State Share (Gold Share) will be held
  by the state in Zim Israel only.
• The procedure for a private sale of Zim was just
  renewed.

11
Structural Changes

• Mekorot Water Co. Ltd.
• Mekorot is a monopoly in water works.
• Separation to distinctive business activities.
• Israel Electric Corp. Ltd. (IEC)
• IEC is a monopoly in the electricity business.
• A Restructuring Law has been passed - separation
  to distinctive business activities in 2006, by
  splitting IEC into subsidiary companies
• Generation
• Transmission
• Distribution.
• Creating competition in generation and
  distribution in order to create a competitive
  electricity market.

12
Future Privatization Plans

• The Postal Authority
• Converting from a Statutory Body to a Government
  Company.
• Opening the postal market to full competition by
  9/04.
• Privatization procedures during 2005.
• Defense Industry Companies
• Privatization procedures during 2004-2005.
• Oil Refineries Ltd.
• ORL is a monopoly in the refinery business.
• Breaking the monopoly by splitting ORL into two
  competing refinery companies (Haifa, Ashdod).
• Privatizing both companies.