(Adds Bezeq and analyst comments, details)
By Ari Rabinovitch
JERUSALEM, June 20 (Reuters) - The Israel Securities Authority said on Tuesday it had opened an investigation into the country's largest telecom group, Bezeq Israel Telecom and its controlling shareholder.
The market regulator said in a statement that the probe "deals with suspicions of violations of the securities law and the penal code relating to transactions connected to the controlling shareholder". It did not elaborate.
Trading in Bezeq and its parent companies was halted in Tel Aviv following the announcement.
The company said it learned of the investigation on Tuesday morning and that its offices were searched.
"The company does not have any additional information about the nature and circumstances of the investigation," it said.
Bezeq is controlled by its chairman, Shaul Elovitch, through holding company Eurocom Group, which declined to comment.
But another Eurocom subsidiary, Internet Gold, said it was suspending a planned bond issue as a result of the investigation.
Eurocom gives Elovitch control over a myriad of assets like satellite operator Spacecom and Enlight Renewable Energy. He is also a close friend of Prime Minister Benjamin Netanyahu, a relationship that bars Netanyahu from dealing with all things Bezeq.
"A prolonged trading halt is a rather rare procedure which requires approval from the Tel Aviv Stock Exchange's chairman and cannot exceed one trading day and gives the company a chance to provide colour to the market," Barclays analyst Tavy Rosner said in a note.
Israel's financial news websites reported that investigators were focusing on a recent deal in which Bezeq bought control of its satellite TV unit from Eurocom.
Bezeq has dominated Israel's telecom sector for decades and, with a generous dividend policy of distributing all its net profit, is a favourite among foreign investors.
Looking to shore up its position further, Bezeq is lobbying the government to end a forced separation of its fixed-line, mobile and satellite TV units.
However, opponents say that allowing Bezeq to combine its subsidiaries into a single company will stifle competition. (Additional reporting by Steven Scheer; editing by Alexander Smith)