Bethel Finance: Concentration c'tee members disagree on holding companies ban

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The Committee on Concentration in the Economy, headed by former Ministry of Finance director general Haim Shani, submitted its final report to Prime Minister Benjamin Netanyahu, Minister of Finance Yuval Steinitz, and Governor of the Bank of Israel Prof. Stanley Fischer today, one month after the disclosure of its recommendations in the media. There is no change in the recommendations, but the final report reveals, for the first time, the minority opinion about the critical matter of pyramids by two of its members: Supervisor of Capital Markets, Insurance and Savings Prof. Oded Sarig and National Economics Committee chairman Eugene Kandel.

The minority opinion of Sarig and Kandel, experts on these issues, matches the views of Israel Securities Authority chairman Prof. Shmuel Hauser and Budget Director Gal Hershkowitz.

Sairg and Kandel say that they agree with the recommendations, which offer the right balance and proportionality between ensuring an efficient and competitive market, and minimizing the damage to private sector activity. They believe that the ban on pyramid holding structures with more than two layers should distinguish between public traded companies and bond companies (private companies that only have bonds traded on the TASE).

In other words, a bond holding company that controls two publicly traded ubsidiaries should not be considered as a layer in a pyramid structure. "Regrettably, bond companies should be allowed to hold two layers of public companies for a limited period of time (up to five years), similar to the committee's recommendation to permit the floating of subsidiaries to the public as a third layer in a pyramid for a designated period of time," Kandel and Sarig write. The reason is simple: in the case of a bond company, a "gap company" would not be created, because the principle of strong control through limited capital will not exist.

Sarig and Kandel say that the recommendation adopted by the Concentration Committee does not offer any reason for distinguishing between the different financing (tradable and non-tradable capital), and creates a preference for a certain method of financing, without offering a reason. They warn against the risk that the committee's recommendations on this point are liable to make it difficult to buy or sell companies that the recommendations will compel the sale of (to separate financial and non-financial holdings and reduce pyramid structures)

"The recommendations without our change will render the building of public holding companies less worthwhile in the future," they write.