Merrill Lynch's Underweight rating for Israel reduces Bezeq's chances of privatization

Another factor delaying the phone company's sale is the dispute over real estate assets
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The privatization of the national phone company

Bezeq

has been sidelined time and again. Other adverse conditions aside, now people involved with the company's privatization estimate that Merrill Lynch's recommendation to Underweight the Israel component of international investment portfolios signals that the privatization of Bezeq may have to wait.

Merrill Lynch's Underweight recommendation is based on its estimate that opposition leader Ariel Sharon will win the prime ministerial election on February 6. The investment house's concern is that if Sharon is voted into power, investor sentiment to Israel may weaken.

Merrill Lynch is advising the Government Companies Authority on Bezeq's privatization. Only two weeks ago Merrill Lynch advised the government that it should continue efforts to privatize the company despite the weakening of global financial markets and in spite of political unrest in Israel.

Authority general manager Yaron Jacobs said yesterday that the Merrill's advice was general and did not refer to any particular time frame. The actual privatization is planned for a few months from now. It is difficult to predict what the circumstances may be then.

Bezeq is traded on on the Tel Aviv Stock Exchange but is still controlled by the Israel government. Its privatization has also been delayed by prolonged talks with the government that began back in August 2000 over real estate assets that both Bezeq and the state claim to own. In mid-January it appeared that a compromise had been achieved. But then it transpired that Bezeq had neglected to file a complete list of the assets in dispute. Bezeq updated the document. But yesterday deputy attorney general Davida Lachman-Messer directed the sides to reexamine all details on the documents.

These days the Government Companies Authority and the Finance and Communication ministries are comparing the above document with prospectuses released by Bezeq in the past. It is thus uncertain when the final draft of this document will be completed. Jacobs said yesterday that he intends to post a sale notice of the controlling stake of Bezeq within the next few days.