Delek Group Ltd. : Israeli Government Panel Recommends Limiting Holdings To Boost Competition

(Adds comments from Prime Minister Benjamin Netanyahu in paragraph 8-9; Bank of Israel Governor Stanley Fischer in paragraph 10; updated share price in last paragraph)

Limiting the holdings of large investment companies is key to increasing competition in Israel and also to lowering overall risk in the economy, according to a government report published Wednesday.

The report was prepared by a government-appointed committee to examine economic concentration and lack of competition in Israel's economy.

The report's main recommendation is to pass a law that prevents large companies from controlling both financial and real holdings. The report calls for limiting holding companies that control units with sales over 6 billion shekels ($1.62 billion) a year, from also controlling a financial firm with assets worth more than ILS40 billion. The report recommended allowing four years for companies to sell assets or subsidiaries in order to comply with a new law.

The report also recommended limiting the pyramid structure of public holding companies to three layers. Competition is currently limited in Israel, where a few large holding companies control several sectors of the economy through various layers of subsidiaries, the committee said. In addition to harming competition, the current situation also carries ethical concerns and limits efficient use of economic resources and puts the overall economy more at risk.

For example in 2010 the sales of six major groups equaled about one quarter of total gross domestic product. And in 2010, about 50% of bond issues on the Tel Aviv Stock Exchange were carried about by 10 companies.

Companies affected by the recommendations include Delek Group Ltd. (>> Delek Group Ltd.), which has holdings in the energy, automotive, real-estate and financial and other sectors and IDB Holding Corp. Ltd. (IDBH.TV), which has holdings in the construction, retail, communication, financial and other sectors.

The legislature will need to approve the committee's recommendations before they can be enforced.

Prime Minister Benjamin Netanyahu said he is committed to enacting legislation to limit holding companies and increase competition.

"I have always believed we need to increase competition," Netanyahu said at a press conference Wednesday. "Competition is the consumer's friend and also the friend of the citizen. It reduces prices, improves service, and it ensures growth."

Bank of Israel Governor Stanley Fischer praised the panel's work and recommendations, but said the government also needs to lower import tarriffs to further increase competition and lower consumer prices.

"Continuing to remove import barriers will allow us to continue to improve the state of the economy," Fischer said in a statement..

At 1314 GMT, shares of Delek Group were down ILS4.50, or 0.60%, at ILS742.50, and shares of IDB were down ILS0.58, or 1.50%, at ILS38.00, in a lower Tel Aviv market.

-By Sara Toth Stub, Contributing to Dow Jones Newswires, saratoth@gmail.com