Wednesday, February 25, 2009

The Threat To Israel From Dubai Is On A Par With Iran

Laura Goldman, who worked on Wall Street for 25 years and now owns her own firm, LSG capital, in Tel Aviv writes on Pajamas Media about The Danger From Dubai:
Although it was reprehensible that the United Arab Emirates (UAE) refused to give Israeli tennis player Shahar Peer an entry visa for a WTA-sanctioned tournament and the world stood idly by, there might be a silver lining to the whole episode. It could serve as a wake-up call to remind the world of the dangers that the UAE poses to Israel — while most of the international attention is focused on Iran.
Goldman notes that while the threat from Dubai is financial, it is no less serious a threat to Israel and its economy:
While it makes for great newspaper headlines when Netanyahu proclaims that “it is 1939 all over again” with regard to Iran, I am equally concerned that landmark days in Israeli history like February 17, 1982, will stop happening. February 17 was the date that the first Israeli company, Teva Pharmaceuticals, went public on the Nasdaq exchange. This exchange is now partially Arab controlled. If the Arab boycott were extended to the Nasdaq, the Israeli economy would lose an important source of capital.
The threat is real when you look at the numbers--and it has nothing to do with Sharia law and Islamic finance:
Where does the Dubai purchase of the Nasdaq leave Israel? The total market capitalization of Israeli companies on the NASDAQ is approximately $50 billion (pre market crash). Israel is the number one foreign issuer with a total of 90 companies. The Nasdaq, in appreciation of the value of Israeli companies on the exchange, currently defrays some of the cost of listing for Israeli companies. In addition, the Nasdaq holds Israeli Company Day to introduce Israeli stocks to institutional investors. With Arab owners, it is doubtful that these activities will continue during flush times.

The logical Israeli response would be to turn to the London Stock Exchange (LSE). But we will be blocked there also. In a related transaction, the Nasdaq sold Borse Dubai a 28% stake in the LSE. The government of Qatar also bought a 24% stake in the LSE at the same time. Israeli companies now face the prospect of listing on an exchange that is almost 50% owned by Arabs.

...Some may underestimate the threat of Arab ownership of the exchanges to Israel. Hi-tech is Israel’s oil. Israel’s version of oil needs capital to operate. Although there are several ways to access capital, the public stock markets have proven the most effective at maximizing the value of businesses in Israel. The effect of the reduced access to capital will not be limited to the hi-tech sector in Israel. If hi-tech in Israel catches a sniffle, the Israeli government budget comes down with the flu. [emphasis added]
The threat from Dubai goes beyond the exchanges--there are other puchases that Dubai has made whose import apparently is going unnoticed:
The bad news from Dubai is not finished. The government of Abu Dubai purchased a 7.5% stake in the private equity firm the Carlyle Group, well-known for its ownership of defense contractors. The many defense contractors controlled by the Carlyle Group could refuse to use Israeli subcontractors in deference to Abu Dhabi. In 2006, defense exports from Israel totaled $4.4 billion. Even worse, the government of Dubai could block the IDF from purchasing weapons vital to Israel’s defense from these military suppliers. They will also have the direct access to purchase them for their own defense.

The Carlyle group, with a Jewish David Rubinstein at the helm, is already participating in the Arab boycott without recriminations from the rest of the world. Carlyle has established a Middle East fund to invest in the region that will exclude investment in Israel. The New York Times sanguinely reports that sources close to the fundraising for this fund say that it would be next to impossible to raise money from other Middle East countries if Israel was one of the countries in the Middle East fund.

The threat may not manifest until the return to a better economy, but when the pressure will be applied profit will undoubtedly precede principle and the threat will become very real.

Crossposted on Soccer Dad

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