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The Catch-22 curbing the sale of Mideast’s insurance bargains

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(Bloomberg) — Israel’s biggest insurance providers look like bargains for potential purchasers, but the same regulator demanding their sale may be hampering efforts to clinch a deal.

While Phoenix Holdings Ltd. And Clal Insurance Enterprises Holdings Ltd., the country’s second- and third-largest insurance firms by assets, need to be sold by their parent companies to comply with Finance Ministry rules, they haven’t been able to secure a deal because of “aggressive regulation,” according to Meir Slater at Bank of Jerusalem Ltd.

The companies “are caught in a bit of a Catch-22,” Slater, the head of research at Bank of Jerusalem in Tel Aviv who has an outperform rating on the companies’ stocks, said by telephone on Wednesday. The regulator, “getting involved in every aspect of the insurance industry, coming up with new rules every Tuesday and Thursday, is frightening potential bidders,” he said.

The latest sale that may fall through is AmTrust Financial Services Inc.’s plan to buy Phoenix from Delek Group Ltd., newspaper Calcalist reported on Wednesday, without saying where it got the information, about a week after Delek said it signed a non-binding letter with a company it didn’t identify. Earlier this month, the potential sale of Phoenix to China’s Fosun International Ltd. didn’t materialize, and an accord last year to sell Delek’s stake to U.S. company Kushner Funding LLC was also canceled.

The Israeli government has been introducing a number of regulatory reforms in an effort to reduce the cost of living and boost competition in an economy where corporate ownership is among the most concentrated in the developed world. In December 2013, it passed a law that prohibits Israeli companies from owning financial services corporations and industrial businesses. The Finance Ministry did not reply to an e-mail seeking comment.

Canceled sales

The Finance Ministry’s capital markets, insurance and savings division gave IDB Development Ltd. until Jan. 7 to sell its majority stake in Clal before having to unload it via the bourse or private transactions. IDB has asked to extend this deadline another eight months, TheMarker newspaper reported on Jan. 28, after a planned sale to Macrolink Holding Company Ltd. fell through due to regulatory uncertainty.

Shares of both Clal and Phoenix are trading below the value of their net assets. At 2.5 billion shekels ($640 million), Clal was 0.56 times book value. Both Clal and Phoenix are cheaper than all but one of the 24 life insurance companies in the Middle East and Africa with market values of at least $100 million, data compiled by Bloomberg show. The median price-to- book multiple for the industry is 1.37.