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The Tel Aviv Stock Exchange (TASE) announced today (Thursday) its intention to enable the listing of limited partnerships engaged in R&D activity for public trading on the exchange. This initiative is part of TASE’s initiatives to expand the range of investment products, enabling the public at large to enjoy the benefits of investing in Israeli technology and innovation over a transparent, liquid and accessible platform. A draft proposal has been posted on the TASE MAYA website for public comments.
It is worth noting that private equity venture capital funds, which diffuse risk by concurrently investing in several high-tech firms, are typically incorporated as partnerships rather than companies. To date, it has not been possible to list for trading units of partnerships investing in R&D companies, and as a result, despite Israel’s standing as a high-tech powerhouse, only a small fraction of the activity in this field finds expression on the TASE trading.
In the past, the opportunity to raise capital through public offerings was given only to limited partnerships engaged in oil and gas exploration or in film production, pursuant to the government’s decision to provide tax incentives to the unit holders of such publicly traded partnerships. As a result, TASE adopted listing rules for limited partnerships engaged in the designated activities to enable investors to realize these tax benefits.
In February 2015, the law amending Israel’s Partnership Ordinance to enhance corporate governance in public limited partnerships was approved, ensuring the public adequate investor protection.
The TASE staff is of the opinion that extending the permission of limited partnerships to list their units for TASE trading to R&D partnerships, specifically partnerships investing concurrently in several projects is warranted.
The limited partnership is the appropriate corporate entity for this activity, given the high risk engendered in R&D, including: the very long horizon between the time of investment and time of revenue generation; the substantially high risk inherent this activity stemming from a high degree of uncertainty; the scope of investment extending over a number of years required for capital investment which, for all practical purposes, cannot be financed by debt. In addition, special expertise is required in both the research and development stages and the owners of the know-how are usually unable to fund the typically high R&D costs on their own.
TASE proposes to enable the listing of R&D limited partnerships under the following principles:
1. R&D partnerships can invest solely in projects that have been approved by Israel’s Innovation Authorityas R&D projects. The definition of R&D in the TASE Rules will be as defined in the Encouragement of Research, Development and Technological Innovation in Industry Law (“R&D Law”).
2. In order to verify that the partnership diffuses risk by investing in several projects, the partnership will have to undertake that the scope of investment in each portfolio project does not exceed 40% of its total assets, at the time of initial investment in the project.
3. A research and development project will be recognized as such only if all rights to the product are held by the corporate entity. In exceptional cases, in which the entity does not hold full ownership of the rights in the product, the approval of Innovation Authority affirming that the entity complies with the objectives of the R&D Law will be required. These include: industrial job creation and employment of scientific/technological human resources, creation of added value for the Israeli economy, development of science-based industries and the encouragement of economic growth, and the improvement of Israel’s balance of payments through the manufacture and export of the products being developed.
4. A research and development limited partnership can be listed solely on the condition that it has already invested in project prior to its initial listing.
The public is invited to render its comments to this proposal on TASE’s MAYA website until March 21, 2019, after which, having considered the comments received, the proposal will be brought for approval by the TASE Board of Directors.
