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Israel uneasy with deal granting UAE control over pensions

Israeli experts warn against the deal, which will have Abu Dhabi government-backed ADQ Developmental Holding Company purchasing a 25% controlling part of Israel’s Phoenix insurance company.
Israelis who were allowed to enter an arena after showing proof of being fully vaccinated against the coronavirus attend a "Green Pass" concert for vaccinated seniors, organized by the municipality of Tel Aviv, Israel, Feb. 24, 2021.

Israel’s financial, regulatory and political systems have been in an uproar this week, when news emerged on Tuesday of an enormous deal being negotiated between the country’s largest insurance company, The Phoenix Group, and Abu Dhabi government-backed ADQ Developmental Holding Company.

Reportedly, a memorandum of understanding was signed, by which 25% of Phoenix to be transferred from Centerbridge Partners and Gallatin Point Capital, two American capital funds that control the insurance company, and Abu Dhabi. This means that the Emirati fund will become the biggest stakeholder of Phoenix, and effectively control the insurance company. The deal is estimated at approximately $680 million.

The signing came as a surprise to the Capital Market, Insurance and Savings Authority, which serves as the country’s regulator for deals of this kind. It will be the one to decide whether the purchase would get the go-ahead. An approval from the Israel Competition Authority would also be required.

In the past, Israel rejected requests from Chinese companies to acquire control of Phoenix. The current decision will only be finalized after a thorough investigation of the economic and security ramifications of the deal.

The news of the deal was originally accompanied by reports about the benefits of the economic peace brought about by the Abraham Accords. Very soon, however, experts began raising questions and even warnings about what the deal could mean.

According to Guy Rolnick, one of Israel’s leading economic commentators, if the Capital Market, Insurance and Savings Authority allow an investment fund from Abu Dhabi to acquire Phoenix, it will be transferring control of the pensions and savings of hundreds of thousands of Israelis to a foreign government. He described the deal as “dangerous and unprecedented,” and suggested that everything should be done to stop it in its tracks.

Rolnick wasn’t the only one to question the deal. Almost every article and report raised the question whether it is right for a group associated so directly with a foreign government — whose interests are more than just economic — to control such a strategic asset. The Israeli market is structured so that institutional bodies like Phoenix have enormous influence on the market.

The financial press has reported on the extreme scenarios that are of concern to senior officials in the financial market. The first is corruption: What if the new owners spend the insurance companies’ assets on corrupt investments with individuals and companies in the Gulf and elsewhere around the world?

The second concern is the leaking of sensitive information to foreign hands. The insurance company has an enormous amount of data on all Israeli citizens using their services. This includes salaries, medical documents, familial status and assets. All of this would be accessible to a foreign government.

It is worth noting that the officials in the Capital Market Authority and the Ministry of Finance who were quoted in reports about the deal all spoke on condition of anonymity. Clearly, they recognize the political and regional sensitivities involved in casting aspersions on a business deal with an Arab state, which only recently signed a normalization agreement with Israel. Then, there is some unease among the senior officials on such a huge and sensitive deal being made before the new government is in office.

One top Likud official told Al-Monitor that he is pleased with the deal, since it shows that the Abraham Accords that normalized relations between Israel and the United Arab Emirates (UAE) in 2020 are fostering close relations between states. Still, the top Likud official warned about the geopolitical volatility of the Middle East. If the UAE could suddenly decide to seek warmer relations with Iran, for example, such shift will have enormous impact on Israel’s national security and economy, he noted.

Prime Minister-designate Benjamin Netanyahu is yet to express a position on the deal. He sees the Abraham Accords as his greatest diplomatic achievement. One of his chief priorities is fostering relations with moderate Arab states, particularly those included in the accords. While the final decision will be made by a committee of experts representing the Capital Market Authority and the Ministry of Finance after the UAE consortium submits a final application, if Netanyahu comes out in favor of the deal, it could sway the decision in its favor.

On the other hand, failure to approve the acquisition by the Emirati holding company headed by Tahnoun bin Mohammed Al Nahyan, the brother of Emirati leader Mohammed bin Zayed Al Nahyan, could muddy the relationship between Israel and the UAE. According to assessments in Israel, since Netanyahu certainly doesn’t want that to happen, he is expected to support the deal.

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