• Israel is exploring minority public offerings for state-owned defense firms IAI and Rafael, potentially listing up to 25-30% of each on the Tel Aviv Stock Exchange.
  • The move comes amid elevated global defense spending and high valuations, with both companies benefiting from surging demand.
  • Regulatory approvals and security concerns remain key hurdles, though a staged process could unfold within a year.

Defense Privatization Gains Traction

Israel is weighing the privatization of two state-owned defense contractors, Israel Aerospace Industries (IAI) and Rafael Advanced Defense Systems, through minority public offerings on the Tel Aviv Stock Exchange, according to people familiar with the matter. The plan envisions selling about 25% to 30% of each company to institutional investors, aiming to raise funds as defense demand spikes amid ongoing conflicts.

IAI, a cornerstone of Israel's aerospace and defense sector, has reported a strong order backlog and revenue growth in recent periods, driven by global demand for its aeronautics and intelligence systems. Rafael, known for its Iron Dome missile defense system and advanced weapons technologies, has seen heightened interest from international buyers. Valuations in the tens of billions of shekels have been cited in recent reports, reflecting robust market conditions.

"The timing is favorable," said a senior analyst at a Tel Aviv-based brokerage, speaking on condition of anonymity. "Global defense spending is at record levels, and these companies have proven technological moats. Investors are eager for exposure." The analyst cautioned, however, that confidentiality restrictions could limit the scope of disclosures.

Regulatory and Security Hurdles

The privatization aligns with discussions within Israel's Defense Ministry and Government Companies Authority, which have historically balanced national security concerns with market access. Past attempts to list IAI, including a 2020 approval that later stalled, underscore the sensitivity of such moves. Rafael's operations are particularly opaque due to classified work, complicating investor transparency.

Efforts to restructure the companies' ownership have hit a snag in previous years, but the current push reflects wartime demand and high valuations driving renewed interest. Without a deal, the government would forgo an opportunity to unlock capital for defense modernization, according to officials familiar with the talks. A spokesperson for the Defense Ministry declined to comment on ongoing deliberations.

Market and Industry Implications

Listing on the Tel Aviv Stock Exchange would center institutional investors and aim to minimize disruption to defense operations while addressing regulatory constraints. Analysts expect a staged approach, with IAI potentially going first given its existing public reporting through bond programs. The IPOs could attract strategic investments and enhance corporate governance, though sensitive areas may remain classified to protect national security.

Concurrent discussions about privatizing other state-backed defense entities have surfaced, with some timelines accelerating due to war-driven demand. If successful, the IPOs could shift how Israel funds defense modernization, signaling a reform of public-sector defense monetization. However, the long-term impact on defense export governance and international partnerships remains uncertain.

Correction: An earlier version of this article misstated the potential exchange for the IPO. The plan focuses on the Tel Aviv Stock Exchange, not a US listing as the headline indicated.