Stock market showdown: who wins the IPO war for Israel’s defense giants?

A major Israeli business group is urging the government to list its state-owned defense companies on the Tel Aviv Stock Exchange rather than on U.S. markeפךשאאts, arguing that the firms are strategic national assets whose growth should benefit Israeli investors.

The proposed offerings, which could value the companies at tens of billions of dollars, are expected to involve sales of up to 30% of the companies’ shares and could generate billions of dollars for the government as defense spending continues to rise following nearly three years of regional conflict.

In a letter to Finance Minister Bezalel Smotrich, Economy Minister Nir Barkat and Minister for Government Companies David Amsalem, the association’s CEO, Ilan Flato, said the companies should be listed first and foremost on the Tel Aviv Stock Exchange.

“These are strategic assets of the State of Israel and an integral part of its defense, technological and industrial strength,” Flato wrote. “They are not ordinary companies.”

Flato, who previously oversaw defense issues in the Finance Ministry’s Budget Department, said global demand for Israeli defense technology is at a record high, the companies’ order backlogs continue to grow and investor interest is increasing both in Israel and abroad.

“Precisely because of this, the State of Israel should not consider listing these companies overseas without first considering the Tel Aviv Stock Exchange as the primary, natural and preferred venue,” he wrote.

He also argued that a domestic listing would allow Israeli citizens to share in the financial success of companies built with public investment.

The debate follows reports that the government is examining U.S. listings for Israel Aerospace Industries, commonly known as IAI, and Rafael in part to avoid some of Israel’s stricter public disclosure requirements for companies involved in classified defense programs.

IAI is Israel’s largest state-owned aerospace and defense company, producing military aircraft systems, satellites, missiles and air defense technologies. Rafael, also state-owned, manufactures advanced missile systems including the Iron Dome interceptor, David’s Sling and the Spike family of anti-tank missiles. Both companies have seen growing international demand since Russia’s invasion of Ukraine and the outbreak of the Israel-Hamas war in October 2023, as governments worldwide increase defense spending and seek proven combat-tested systems.

Israeli officials are currently studying whether to pursue U.S. initial public offerings for the companies and their subsidiaries. Supporters of the move argue that a Nasdaq listing could attract a larger pool of international investors while allowing the companies greater flexibility in handling disclosure requirements related to sensitive military projects. Opponents say listing abroad would deprive Israel’s capital markets and domestic investors of the opportunity to participate in one of the country’s fastest-growing sectors.