By Guy Hadass

The privatization of Israel's national telephone company

Bezeq

has been postponed for an indefinite period, Communications Minister Reuven Rivlin told TheMarker.com.

Rivlin said that the reasons are more to do with the state of the markets than allegations against Israeli businessman Gad Zeevi. The Israeli police force is investigating allegations that Zeevi financed his purchase of a 20% stake in the Bezeq phone company using laundered Russian mob money.

Today the minister met with Government Companies Authority director Yaron Jacobs and other officials involved in the phone company's privatization. The officials decided that it would be best to defer the company's sale.

The Government Companies Authority was supposed to release the terms of the tender for Bezeq's privatization by next Monday. Rivlin did not state when the tender would be published. The situation will be further assessed after the Passover holiday, which ends in mid-April.

Rivlin said that the ministry and Government Companies Authority are both determined to proceed with Bezeq's privatization. It isn't a change in attitude, he stated, merely a temporary holdup.

Three reasons to delay

Rivlin explained that there are three main reasons behind the decision to postpone the phone company's privatization. The first is the sorry state of global capital markets. The second is the sorry state of the Israeli financial markets.

The third factor, Rivlin said, is the police investigation into where businessman Gad Zeevi's group received financing to buy its 20% stake in Bezeq. (See

related story

.)

Rivlin clarified however that the Zeevi investigation was of lesser importance than the state of the markets. He said that if share prices had retained their strength, and Bezeq stock was trading at more favorable valuations, the Zeevi affair would have been of little import.

Decision makers at the Communication Ministry are concerned about the above factors deterring potential investors.

Meanwhile, Merrill Lynch has been hired to evaluate the situation. The Government Companies Authority will consult with the bank on the best timing for Bezeq's privatization.

There is another outstanding issue holding back the company's privatization, also involving Gad Zeevi. He has not yet signed his consent to Bezeq raising NIS 1.3 billion through an issue of new securities, money Bezeq needs to finance an early retirement program. Under the circumstances, the probability of his inking his commitment is looking remote.

Police seize accord detailing relations between Zeevi and Chernoy

TheMarker.com adds:

The Israeli police have seized an accord signed by businessmen Gad Zeevi and Mikhail Chernoy outlining their relations in regard to acquiring shares in the Bezeq phone company, freelance correspondent Yoav Yitzhak reveals.

The agreement allegedly states that Chernoy agreed to provide Zeevi with collateral and loans to be used to buy a 20% stake in the government-controlled Bezeq phone company for around $630 million, Yitzhak reports. A lien was placed on the Bezeq shares in the favor of banks that lent money to finance the transaction.

But the factor that implicates the two businessmen in shady dealing, Yitzhak writes, is the part of the agreement where Zeevi grants Chernoy an option to buy part of the Bezeq shares Zeevi bought, for an amount of money equivalent to the amount of the loans. The amount of shares in question could exceed 10% of the company's total equity, Yoav Yitzhak points out. The option's exercise is contingent on Bezeq being privatized.

Zeevi bought his 20% stake from the British company Cable & Wireless, which had considered buying the controlling interest in the Israeli company, but ultimately opted out.

As required by the Israeli Telecommunications Law, Zeevi obtained approval for the transaction from the government and the security services. It now transpires that the state authorities may granted Zeevi the approval he sought without properly looking into the matter, Yitzhak writes.

Yitzhak notes that Zeevi properly answered questions presented to him, but did not divulge his financial relations with Chernoy.

But when Zeevi sought permission to buy more Bezeq shares during 2000, the authorities began to wonder where he was getting his money from. This sparked the investigation now in progress.