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THE ECONOMY The dollar continued to rise against the shekel; on Monday this week it reached an all-time high of NIS 4.744 to the dollar. Since the Governor of the Bank of Israel announced six weeks ago that he was slashing interest rates by 2%, the shekel has devalued by 12% against the dollar. Yesterday however, after the new record was set, the Governor made a special announcement in which he hinted that he would raise interest rates in order to calm the foreign exchange market and maintain inflationary targets. The Bank of Israel is concerned that a major, ongoing devaluation may result in inflation. As a result of the Governor's announcement, there was an about-face in trade and the dollar began to fall, with the exchange rate set at NIS 4.72 - 0.5% below the record high of the previous day. The dollar continued to weaken and was traded among the banks at NIS 4.68, 2% below its peak level. Investments by Israelis in securities overseas are expected to reach $2 billion in the first quarter of 2002 - an 800% increase in investments compared with the preceding quarter (2001 Q4). In the first nine months of 2001, Israelis invested $300 million in securities overseas, a third of the anticipated investments for the first quarter of 2002. In other investments, Israelis directly invested $1.1 billion overseas during the first nine months of 2001. Since the events of September 11, the last quarter of that year saw a sharp increase in activity by Israelis in overseas securities, together with an increase in the volume of trade in shares of Israeli companies traded abroad. Successful issue of bonds by Israel's Finance Ministry - this week the Finance Ministry issued bonds worth Euro 400 million. At first there was a decision to issue Euro 300 million, but due to high demand, Finance Minister Silvan Shalom decided to increase the scope of the issue from 300 to Euro 400 million. Merrill Lynch and U.B.S. Warburg managed the issue, set for 7 years and sold at an annual yield of 5.98%. This represents, for example, a 122 base point (1.2%) above German government bonds for a similar period. The bonds were sold to more than 50 institutional investors, particularly to insurance companies, pension funds and Europe's major portfolio investment companies. The Finance Minister said that the success of the issue, particularly at this time, confirms the faith that the Europeans have in Israel, and is proof of the strength of the Israeli economy and its access to international markets. A group of entrepreneurs from the U.S. proposed setting up a tourist park in Eilat, at an investment of $300 million on a 1,400 dunam site (3 km. long), on land owned by the Israel Lands Administration, which has already given its consent to the plan. The entrepreneurs, Sea Kingdom, are currently submitting official applications to approve the project. The plan includes entertainment attractions, fun, sports, a spa, giant aquariums, a snow skiing facility and more. The entrepreneurs estimate that in the future cooperation with the Jordanian government may be possible. It is hoped that the project - to be called Aquaria - will be completed within 3 years of receiving approval. The Israeli company Shachal, which provides medical services in the field of cardiac medicine, has submitted a proposal to purchase the American company Raytel, which supplies similar services, for $30 million in cash. Shachal is traded on the Swiss Stock Exchange and wants to acquire Raytel in order to penetrate the American market where it does not yet have a presence. The American company, which services 162,000 subscribers, posted losses of $33 million in 2001 with a turnover of $71 million in 2000, and profits of $5 million on turnover of $98 million in 1999. Shachal ended January-September 2001 with profits of $12.3 million, and is traded at a market value of $130 million. An Israeli start-up company raised a near record amount this week: the Israeli chip-manufacturer Mellanox raised $50 million in its third round, at a company value of $251 million. Mellanox develops chips, designed to communicate between servers and storage systems. The issue was led by the American VCF Bessemer Venture Partners, which invested $10 million in the Israeli company, and was joined by numerous international bodies: Bank of America Securities, China Development Bank, Dell Computers, Sun Microsystems, Jerusalem Global Ventures, the chip manufacturers JMI and Quanta Computers, Intel Capital, Rasa Ventures, Sequoia capital, USVP, Vitesse Semi-conductors, the Israeli VCF Walden and other private and institutional investors. The Israeli realty company Mivnei Ta'asiyah intends to invest $50 million in productive realty overseas. This week the company held a presentation for institutional investors, in preparation for a debentures issue next week. Mivnei Ta'asiyah intends to raise at least NIS 580 million through the issue, and to substantially reduce the scope of its new investments in real estate in Israel. A certain amount of the issue will be Euro-linked. The company's real estate investments will focus on Western Europe, and for this reason the issue will be partially in Euro-linked debentures. The controlling shareholder of Mivnei Ta'asiyah is Eliezer Fishman. The Israeli company Agan Makhteshim, which manufactures pesticides, has purchased from Occidental the line of Oxol products, which is a solvent used as a component in the car-paint industry and for electronics and glue industries. Agan Makhteshim will receive the product's U.S. inventory, the intellectual property, and its patent's registered trademarks. Agan Makhteshim will pay a million dollars for the production line, through its subsidiary company Millenia. The deal will expand surplus production capacity at Millenia's Brazil plant.
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