Zahava Gal-On
Zahava Gal-On Photo by Emil Salman
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Two Knesset members from opposing political camps are proposing a bill that would curtail companies' ability to short bondholders on debts.

Companies that can't repay their bondholders in full generally offer some sort of debt refinancing, for instance an increase in interest in exchange for more time to repay, known as a haircut in bond market jargon.

Knesset members Zahava Gal-On of Meretz and Yitzhak Vaknin of Shas are co-sponsoring a bill that would require court approval for any request by a company to change the terms of more than 10% of the scope of any given series of bonds.

The court would appoint a trustee to represent the bondholders, they propose in their bill, which they brought before the Knesset yesterday.

The retreat in equities in recent days, which has badly hit the share prices of companies owned by "tycoons," merely highlights the need to "institute order" regarding bond repayments, Gal-On said.

"This breakthrough bill aims to end the era of haircuts by the rich at the expense of the public," she said.

Single business groups are able to own both companies engaged in finance activity and non-finance activity, she explained: Institutional investors that control the public's money are controlled by the same people trying to avoid debt.

As things are, both parties to a debt renegotiation may have an interest in making the public bear the expense, Gal-On said.

"There is no element representing the public interest," she said. "This has led to scandalous arrangements such as that of Ilan Ben-Dov and Yitzhak Tshuva, which are giving the public haircuts amounting to dozens of percent. The ones cutting the coupon are always the rich," she said.

Furthermore, she argued, their bill would motivate institutional investors to curb risk in their investments, since the institutional investors would be curtailed in the arrangements they could reach under the court's watchful eye.

A pension fund aware that its speculative fling in a leveraged company could end in tears will think twice, whereas today it doesn't have to think once, Gal-On said.