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Paper Paper Everywhere

For a limping sector, Israel's telecoms are looking to sell, issue, and cash in an awful lot of the stuff

Perhaps the biggest paradox regarding the beleaguered Israeli telecom sector is that fact that during this sector's biggest ever downturn, almost every company is either looking to raise money, or has shareholders looking to sell shares. This makes the outlook for this sector¿s performance in 2002 even more difficult to predict.

Bezeq (TASE: BEZQ ), of course, has the biggest stock overhang, for three reasons. Aside from the fact that the government is about to embark on an offering of shares to fund an early retirement program, it still has the little matter of its controlling stake to privatize. As of yet, not a single international group has shown the slightest interest in purchasing this stake, and I would not expect this situation to change for the foreseeable future. Aside from this, lets not forget that the banks now own 20% of Bezeq. Its hard to believe that they will be long term owners of Bezeq shares.

PartnerLast week, Polar Communications (TASE: PLRC )sold 700,000 Partner Communications (Nasdaq: PTNR)shares. The local press report that Elron (Nasdaq: ELRN)and Matav are also considering share sales. Whilst they are limited in the numbers they can sell, together, they constitute an important share overhang. And lets not forget the shelf filing that Partner completed recently with the SEC. They could use this filing in a number of different ways, one of which could conceivably be¿ equity offering.

MatavMatav (Nasdaq: MATV) needs to refinance, of that there is no doubt. The local press suggest that the company is considering some form of local offering, possibly a convertible bond. While equity raising looks unlikely from Matav, should it fail to procure sufficient bank financing, the company will surely turn to the local capital markets for help.

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CellcomCellcom is a privately held company, so there is no stock overhang as such here, but barely a week goes by without press speculation of changes in shareholding structure and stakes for sale, with Bell South the most frequently mentioned seller. It is difficult to imagine that the company will not suffer to some degree as a result of any changing shareholder structure, as the new shareholding group decide on a new strategy for the company.

YESOnly Bezeq appears to have the stomach (and the strategic nose?) to continue to sustain YES in its battle with the cable companies. Eventually, it would appear that Bezeq will become the majority (possibly the only?) shareholder in YES. Will this happen in 2002? Perhaps not, although this possibility cannot be written off completely.

CATV CompaniesWill they finally complete their merger? If so, will they look to raise money on the capital markets to fund business development and pay down debt? One has to believe that this is one of the routes being considered by the controlling shareholders should the merger receive approval in 2002.

Overall therefore, 2002 is going to be a hectic year for the sector¿s companies and their shareholders. Lets hope that the local capital markets remains solid enough to absorb the paper that will float this year.