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The recent debt arrangement troubles of some of Israel's largest companies revealed that in today's capital market, when companies hold massive bond issues and later have cash flow problems, tycoons can find themselves at the mercy of their major bondholders. This reality sets an intriguing stage for media and real estate tycoon Eliezer Fishman, who has amassed a large quantity of bonds issued by Ilan Ben-Dov's investment arm, Tao Tsuot.

The Jerusalem Economic Corporation and Industrial Buildings, both of which are controlled by Fishman, own Tao Tsuot series B3 bonds with a total face value of NIS 59 million, or 20% of the face value of the entire series (NIS 292 million). Since Tao and Ben-Dov own bonds worth NIS 140 million, the relative weight of Fishman's Tao bonds that are not held by the controlling shareholder doubles, to 40%.

This holding was current as of the beginning of 2009, but it has probably not changed much since then. Fishman group sources refused to comment or confirm whether the bond holding had been altered significantly.

The Israeli capital market is influenced by business circles, in which the activities of various businessmen touch and overlap. Two businessmen who have been operating side by side in recent years are Fishman and Ben-Dov, whose business operations overlap extensively.

The concept of Taoism, from which the name Tao is derived, means path in Chinese, and Fishman and Tao are following the same path.

When Ben-Dov signed a deal a few weeks ago to buy Partner Communications, he said there were numerological explanations for the timing of the 10 A.M. signing. More than numerology, however, is needed to explain Fishman's holdings in Tao bonds, which are a clear indication of the common interests and relationship shared by these two prominent Israeli businessmen.

The significance of Fishman's holding in Tao bonds could be quite dramatic in certain circumstances, for example if Tao does not manage to extricate itself from the liquidity difficulties that have been troubling the company for the past two years.

Tao, a holding company that invests in other companies, ended the third quarter of 2009 with a capital deficit of NIS 300 million. This situation has been improving in recent months, however, and Tao has reduced the amount it owes in bank loans. The company's securities portfolio has also appreciated, along with the stock market's recovery.

Even so, if one of these days Tao's bondholders convene a meeting and want to force the company into a debt arrangement, they will need a majority of 75% of the bondholders who are untainted by a conflict of interest. Since Fishman owns over 25% of the bonds that are clear of any conflict of interest, he could create a block that could foil any decision that is problematic for Ben-Dov.

Some investors believe this is more than just a fanciful scenario, but Fishman's response Monday was that it sounded like a good joke to him. Even after sharp increases since the beginning of the year, Tao bonds are trading at a high yield of 30%, even though their expiry date is not so far off, in 2.5 years.

This is not the first time Fishman's and Ben-Dov's business paths have converged. In early 2006 Fishman lost over $400 million on an unsuccessful gamble on the Turkish lira, in transactions whose exposure reached NIS 15 billion. Following that loss Fishman was forced to sell off some of his assets, and Ben-Dov was among those who came to his aid, buying 22.5% of the share capital in Darban Investments and some of Fishman's holdings in Ten Petroleum. Then last year, when Tao hit a cash crunch, it was Fishman's turn to help Ben-Dov by buying back Ten for NIS 26 million.

The two men recently transacted another deal in which they exchanged holdings. In October Ben-Dov and Fishman drafted an agreement whereby Tao would allocate 10.5% of its Darban holding to Fishman, in exchange for a 5% share allocation in Industrial Buildings in Tao's favor. The goal of that deal was to improve Industrial Buildings' capital structure and its financial ratios.