(Releads with IDB chairman comments, adds parliament member's quotes)
By Tova Cohen
TEL AVIV Feb 18 (Reuters) - The chairman of IDB Development , which of all Israeli conglomerates has the most layers of companies, urged the government to freeze a new law aimed at breaking up such structures.
Israel's parliament in December passed the Business Concentration Law, which will limit such pyramid-shaped conglomerates to two layers of listed companies and bar them from holding both significant financial and non-financial businesses.
The law's supporters said it would promote competition and dilute the power of big businesses and tycoons.
Aharon Fogel, IDB's newly appointed chairman, said on Tuesday the public will be hurt by the law as it will not be able to invest in the assets that will be sold off, some of which might be sold in stock offerings abroad.
In addition, the valuation of these companies will decline, he told a business conference.
"I call on the prime minister and finance minister to freeze the law in order to examine it further," Fogel said.
IDB controls Cellcom, Israel's biggest mobile phone operator, and leading supermarket chain Super-Sol, Clal Insurance and many other companies.
Nissan Slomiansky, head of parliament's finance committee and a driving force behind the law, called Fogel's statement "absurd", saying concentration has prevented Israel's economy from developing to its full potential and brought a higher cost of living.
"The Concentration Law is the salvation of the country's economy, preserving the money of the average citizen and freeing the country from this terrible concentration," he said in a statement in response to Fogel's comments.
Israel Securities Authority Chairman Shmuel Hauser, also speaking at the conference, said the law will make Israel's capital market more interesting and more competitive.
He said the number of groups structured as pyramids with at least three layers has fallen to 48 from 68 in the past two years as parliament debated the new legislation.
Hauser said, however, that 10 conglomerates still account for 40 percent of the market value of Tel Aviv-listed firms.
He said the success of the law will be not just in breaking up the pyramids but the extent to which these assets, "especially in the financial sector, will pass to the public by the dispersion of shares in the market".
Hauser expects an increase in the base of investors, in company market values and in market liquidity.
The law could put about 40 firms worth 80 billion-100 billion shekels ($23 billion-$28.5 billion) up for sale, according to Israeli corporate law firm Gross Kleinhendler Hodak Halevy Greenberg & Co (GKH).
David Hodak, chairman of GKH, said he does not see Israelis standing in line to buy the assets to be sold, nor does he see a stream of foreign buyers.
"I think they will have to disperse the controlling shares, as is happening with Discount," Hodak said, referring to the sale of a controlling stake in Israel's third-largest bank.
Discount's controlling shareholders in December sold 7 percent to institutional investors, the start of a phased sell-off of their 25 percent holding.
($1 = 3.5108 Israeli shekels) (Reporting by Tova Cohen; Editing by Steven Scheer and Anthony Barker)