Saturday 23 July 2011

Israel gets windfall in privatisation of Cross Israel Highway

The Israeli government had indicated some time ago that it intended to embark on a programme of privatisation, including its 49% stake in Road 6 franchisee Derech Eretz Highways (1997) Ltd. The road, known variously as Road 6, the Cross Israel Highway or the Yitzhak Rabin Highway, is Israel's largest toll road, employing fully electronic free flow technology, with tolls measured according to the number of gantry points a vehicle passes.

Wikipedia describes the highway here, with the official website here in Hebrew.  It is 104 km long, started construction in 2002 and has a franchise through to 2029.

Derech Eretz's 51% private stake is held in equal proportions by Israeli companies Israel Infrastructure Fund and Shikun & Binui.  According to Israeli business website Globes, the government's stake had been valued at up to NIS550 million (US$162 million).

The price obtained is far in excess of that.  Globes now reports that Noy Infrastructure and Energy Fund has agreed to pay NIS1.4 billion (US$412 million) for the road.  It is the first investment from the fund which was established on 1 May. 

Globes reports further on the composition of Noy:

Noy Fund's partners in its winning bid for Road 6 include top investment institutions Psagot Investment House Ltd., Menorah Mivtachim Holdings Ltd. (TASE: MORA), Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), DS Apex Holdings Ltd. (TASE:DSAP), The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5), and Eliyahu Insurance Company. 

The other bidders oddly only wanted to buy part of the concession, making Noy the clear winner, and making it suddenly a key strategic investor in infrastructure.  

What must happen now is for the other two private investors to respond.  They must decide if they will match the offer of Noy to keep their respective proportions of shares.  They can do nothing, sell their stake to Noy Fund, or match it.  None of these will concern the government.  Indeed they will probably see the Noy bid as a boost in confidence in the future viability of the toll road.

Clearly, the view is that there is money to be made from this critical highway, which is Israel's major north-south artery bypassing Tel Aviv.  My question is whether Noy will be looking elsewhere to make further investments in toll roads.

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