Bottom shekel / The market doesn't want their debt

The capital market has decided: Lev Leviev and Yitzhak Tshuva are going to have trouble overcoming the situation. That's what the events of the last few weeks mean.

During the good years, their empires - Africa Israel and Delek respectively - borrowed massively. On Thursday, if you wanted to lend money to Leviev, you could buy Africa Israel bonds on the Tel Aviv Stock Exchange at a yield of 62%, which means a 62% return each year until the bond matures.

Meanwhile, just about every other investment avenue in the market is racking up negative returns. Also on Thursday, if you wanted to lend money to Tshuva, you could buy Delek Group bonds at a yield of more than 20%. Bonds of subsidiary Delek Real Estate could be had for a yield of 61% (B5 series) or an astronomical 152% (B4 series).

Yet somehow, nobody was buying bonds from Leviev or Tshuva on Thursday.

Is it herd behavior by the market? Are investors panicking? Is the market stupid?

Answers: Apparently - yes, yes and no.

Yes, the prices of many securities are falling because investment managers have no choice but to sell. People participating in mutual funds of provident and mutual funds withdrew their money and put it somewhere else. As money evaporated from the funds, the funds had to sell holdings. That's how it goes.

True, there are also foreign investors selling blindly. Say a hedge fund from Oslo decides to eliminate its exposure to emerging markets. It sells everything it owns from Russia to Israel, including securities issued by Delek Group. It is also true that the bond market is riddled with market failures. Many a debenture is trading at a much lower price than it should be.

Remember that Yossi Investor never owned "a bond." He never got into the capital market. The "market" in Tel Aviv consists of a few hundred investment managers and analysts, most of whom know how to read a financial statement and balance sheet, and to evaluate risk.

And they read the financial statements and balance sheets and evaluated the risk and decided that it's possible the big tycoons will default. This group decided that the bonds by Tshuva and Leviev are inferior. But other bonds associated with "tycoons" such as Chaim Katzman's group Gazit Globe remain at yield levels of around 10%.

Tshuva and Leviev aren't rushing to invest hundreds of millions of shekels in buying back their bonds, although some are trading at firesale levels.

Delek Real Estate and Africa Israel will have to refinance, even if they have the wherewithal to meet the nearest bond payments. The thing is, the money they borrowed from the public was invested in projects that haven't been sold yet. When the time for repayment comes, what is currently just the market's opinion could become cold fact.

When the yield on your bonds is 60%, you can't sally into a bank and ask it to refinance you. The banker can read financial reports and balance sheets too and won't lend a sou to a firm with double-digit returns on its bonds.