David Azrieli could not have picked a worse time to hold the IPO of Azrieli Group, the largest in the history of the Tel Aviv Stock Exchange (TASE). The company planned to raise NIS 2.5 billion in the institution tender of the IPO yesterday, only to see the offering torpedoed by predawn interception of the flotilla to Gaza, which sent the TASE reeling.

The opening of the bid envelopes presented a dismal picture that can sum up the offering as a failure. Demand from institutional investors totaled NIS 1.55 billion, well below the underwriters' predictions of NIS 2 billion for the 80% of the shares offered in the tender.

The other 20% of the shares will be offered in the public tender next week. It now appears that the offers in the public tender can total no more than NIS 950 million, amounting to 38% of the total offering, and will probably be much less. The low demand in the institutional tender signals that even the lower price for the offering of NIS 83.25 per share, reflecting a capital equal to the company's valuation, will be no higher in the public offering.

David Azrieli will now have to decide whether, in response to the low demand - NIS 1 billion less than hoped - to offer fewer shares than the 25% of Azrieli Group originally planned, or even cancel the offering altogether. In either case, he did not get what he wanted.

There was no underwriter guarantee to make up the demand shortfall in the offering, and the underwriters only functioned as distributors.

Early yesterday, top capital market sources told "Globes" that there was a good chance that the offering would succeed, and that most local large institutional investors planned to participate in the institutional tender. There's no rush, but get ready for a lengthy offering in which we'll participate was the mood of comments among investment managers yesterday.

Published by Globes [online], Israel business news - www.globes-online.com - on June 1, 2010

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