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Israel’s credit rating, natural gas and automotive tech

Straight from the Jerusalem Boardroom #243

  1. According to Standard & Poor, Fitch and Moody’s – the world’s top credit rating companies – Israel and Australia are the only two Western countries whose 2019 credit rating (reflecting economic growth) is higher than it was before the global economic meltdown of 2007/2008. Currently, Israel is rated AA- by Standard & Poor, A+ by Fitch and A1 by Moody’s.
  2. According to the London Economist (November 5, 2019), despite short-term political uncertainty, Israel’s economic growth is sustained by a strong domestic consumption, an expansion of natural gas explorations, findings and export, and the continued dynamism of the hightech sector, which has attracted substantial foreign investment. For example, Intel announced its plan to invest $11BN in a new export-oriented semiconductor manufacturing facility in Israel [as a follow up to the 2016 acquisition of Israel’s Mobileye for $15.3BN and investment in scores of Israeli startups].
    Israel’s economy features low unemployment (3.7%) and rising real wages. Exports are expected to rise despite the relative global economic slowdown, and independent of the continued appreciation of the Shekel (the strongest currency against the US dollar), but due to the initiation of natural gas exports.
    GDP growth is expected to slow to 2.9% in 2020, before recovering to 3.8% in 2021 and 4% in 2022.
  3. The NYC-based Centerbridge Partners and Greenwich, CT-based Gallatin Point Capital acquired 32.5% of Phoenix (Israel’s 2nd largest insurance group) for $450MN (Globes Business Daily, Nov. 5, 2019). Germany’s insurance giant, Munich Re, invested $250MN in Israel’s Next Digital Insurance startup, which was founded in 2016 by entrepreneurs who in 2014 sold their previous startup, Check, to the Silicon Valley-based Intuit for $360MN (Globes, October 8). The Greenwich, CT-based General Atlantic led a $165MN investment in Israel’s Riskified, which develops software preventing fraud and verifying consumer identities (Wall Street Journal, Nov. 5). Israel has become Europe’s Silicon Valley. During the first half of 2019, German investors accounted to 30% of the number of European deals in Israel’s ecosystem, including a branch of Merck, the global pharmaceutical giant. While German investment profile is dwarfed by the USA, 60% of the leading Frankfurt Stock Exchange companies have Israeli branches, seeking Israeli technologies, surging since 2016. In 2018, German investors were 4th in the number of Israeli deals – 5% of total deals foreign investment – between the UK’s 7% and China’s 4% (Globes, August 12).
  4. Egypt’s Middle East News Agency reported on November 11, 2019 that Noble Energy and Israel’s Delek Drilling, the operators of Israel’s largest natural gas fields, established a $518MN joint venture with Egypt’s Dolphinus Holdings, which will pave the way for Israeli natural gas exports to Egypt (85.3BN cubic meters over 15 years), starting on January 1, 2020.
  5. The Greece-based Energean Oil & Gas (jointly with Israel’s Opportunity Energy Resources) published the results of its appraisal drilling in Israel’s Karish North Discovery, estimating recoverable resources of 0.9 trillion cubic feet (25 billion cubic meters) of natural gas plus 34MN barrels of light oil/condensate (natural gas liquids), in addition to 2.4 Tcf (68 BCM) and 33MN barrels of light oil/condensate discovered previously. Energean recently obtained licenses for four additional marine exploration sites. 12 more offshore drilling licenses issued to overseas operators, including Britain’s Cairn Energy and Pharos Energy.
  6. 600 of Israel’s 8,000 startups are focused on transportation-related solutions. Israel has become a leading global hub for smart mobility, according to David Liniado, Vice President of the Atlanta-based Cox Automotive Mobility. Cox is expanding partnership with Israeli startups, including a joint research & development center with Drive TLV, which involves Volvo, Honda and Hertz. The Paris-based Faurecia (114,000 employees in 35 countries), a world leader in automotive technology invested in Israel’s Guardknox, a cybersecurity company, reinforcing passengers’ safety and data security.
    Ford is setting up an Israeli research & development center, as a follow up to the 2016 acquisition of Israel’s SAIPS, which specializes in computer vision and self-driving car learning. Intel and Nvidia established research & development centers in Israel, which develop chips for autonomous vehicles. GM founded its research & development center in Israel in 2008. BMW is about to introduce its own Israeli research & development center, as did Volkswagen in 2018. Over 20 global carmakers and suppliers are involved with Israeli research & development centers, leveraging Israel’s brain power.



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Israel’s Brain Power (Hightech) Features a Grand Decade

Straight from the Jerusalem Boardroom #244 
Prior issues of the Boardroom: https://bit.ly/2EV9Td2

  1. According to PriceWaterouseCoopers, the 2019 volume of Israeli hightech exits (companies that were sold or held stock exchange offerings), totaled $9.9BN, compared to $4.9BN in 2018, $7.4BN in 2017, $14.9 in 2014, $7.6BN in 2016 and $1.2BN in 2010. If 10 follow-on deals are included (companies acquired more than once, or acquired after public offering), then the 2019 volume surges to $22BN. $4.5BN of the 2019 exits were in computing services and corporate software, $2.3BN in the chips sector, $1.7BN in life sciences, and $1BN in the Internet sector.

The past decade featured 587 exits, totaling $71BN. If follow-on deals are included, the total surges to $108BN.

Major US corporations persist in leading the acquisition of Israeli hightech companies – $8.9BN in 2019 (Globes Business Daily, December 24, 2019).

The substantial flow of private US investment – establishing, in Israel, multitude of research and development centers – reflects Israel’s unique contribution to the US economy in terms of research and development, enhanced US competitiveness in the global market, increased exports of US products and expanded base of US employment.

  1. Intel invested $2BN in the acquisition of Israel’s 3-year-old Habana Laboratories, which develops chips for Artificial Intelligence applications. It is Intel’s 13th acquisition of an Israeli company (Bloomberg, December 16). Intel has operated in Israel since 1974, employing 12,000 people in one manufacturing plant and four research and development centers.
  2. Texas-based Noble Energy, which operates Israel’s largest offshore natural gas field, Leviathan, will start supplying the local Israeli market by the end of December. In January, 2020, Noble Energy and Israel’s Delek Drilling will start exporting natural gas to Egypt, as prescribed by a $20BN deal – of 85 billion cubic meters (3 trillion cubic feet) – concluded with Egypt. Egypt will be able to export the imported natural gas following its liquefaction (Al-Monitor, Dec. 13) in Egyptian installations.
  3. Key Israeli economic factors in 2020:

*Interest rate is expected to remain low (around zero);
*Inflation is expected to remain low (around 2%);
*The ratio of national debt to gross domestic product is expected to remain low (around 60%, compared to the US – 60% and Japan – almost 250%);
*Expanding employment and all time low unemployment (4% and below);
*Expanded employment of ultra-orthodox Jews and Arabs;
*Annual economic growth is expected to be sustained at 3%-3.5%;
*Israel’s Shekel is expected to remain strong (around 3.4 per dollar);
*Overseas investment in Israel’s hightech will persist at high levels;
*Export of high added-value commercial and military products will keep growing, irrespective of the strong Shekel;
*Offshore natural gas export (to Egypt and in the long run to Europe) will alleviate the burden of the 2019 growing budget deficit, which will require across-the-board budget cuts;
*Israel’s demography will remain robust (high Jewish fertility rate and growing net-immigration/Aliyah);
*Israel’s solid economy provides for a friendly debt-financing environment.
(Globes, December 17).

  1. Some 140 airliners land in Israel, reflecting the sizeable number of Israelis flying abroad (8.5MN in 2019) and tourists (4.5MN in 2019). Israel’s population is 9 million. The volume of passengers to/from Israel grew by 9% in 2019, compared with a 5% global growth. It contributed $16BN and 184,000 jobs to Israel’s economy. Direct flights were initiated from Israel to Las Vegas, Chicago, Brazil and Chile, and additional direct flights are expected, in 2020, to Dallas, Tokyo and Australia (Globes, Dec. 24, 2020).

 

 

 

 




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