The Africa Israel settlement / Who wants to pay Lev Leviev a NIS 3 billion salary?
Lev Leviev, the former top-tier tycoon who is currently struggling to save his company, Africa Israel, from collapse, is asking you for a salary. Not a monthly salary, heaven forbid, but a salary nonetheless. And not a meager salary, perish the thought, but a salary of NIS 3 billion. Anyone willing to pay him?
Leviev owes you, the public, about NIS 7.5 billion. This is the total debt owed to holders of Africa Israel bonds, the vast majority of which can be found in your pension and provident funds. It is no secret that Africa Israel has no way of paying its debt to bondholders, so this week, Leviev offered to settle. The proposed settlement would require you to give up about NIS 3 billion of the money owed to you. In exchange, you would recover part of the debt, and would also receive shares in Africa Israel and its subsidiaries.
Simply put, you were asked this week, in the spirit of generosity, to approve a NIS 3 billion payment to Leviev. That is the amount you are being asked to surrender in order to ensure that Leviev will continue managing Africa Israel for you. Do you think he has done a job that warrants this salary?
The funny thing about the whole deal is that you do not actually need Leviev's not-too-successful management services. In fact, you can do without his services almost completely. All you need to do is remind Leviev, and yourself, that Africa Israel is a holding company - a basket of companies, each of which has its own management. You are quite familiar with many of these companies, since they are traded on the Israeli (and London) capital markets, and most are managed extremely well. As a result, obtaining direct holdings in the group of companies that make up Africa Israel is simple: All you need to do is ask Leviev to give you Africa Israel's shares in its subsidiaries, and you no longer require his services as the group's manager.
And wonder of wonders, you would also benefit from such a move. According to capital market estimates, Africa Israel's holdings in its subsidiaries are worth almost exactly the amount it owes. So instead of paying NIS 3 billion by forgiving a debt and continuing to employ Leviev, you could receive about NIS 7 billion worth of shares in Africa Israel subsidiaries, and manage without Leviev.
Sound simple? It is. But that does not mean it will materialize. There are too many major players and too many important people that could be hurt by this solution - and they may not let you, or the institutional investors that represent you, advance this idea.
Who would it hurt? Leviev, of course: If it were accepted, he would be left as controlling shareholder of an Africa Israel that owns nothing. His shares would become an empty shell, and he would lose his investments - and the source of his power in Israel.
Bank Hapoalim would be hurting, too. Banks just love to make fun of institutional investors who supposedly understand nothing and do not know how to invest in bonds, but sometimes it turns out that banks understand even less. Bank Hapoalim is just such a case. The bank gave Leviev a loan to increase his holding in Africa Israel, secured by the company's shares. If the plan we propose is adopted, and Africa Israel shares lose their entire value, Bank Hapoalim will be exposed in all of its amateurishness: It will be faced with a loan backed by worthless securities, and hence with the prospect of writing off more than NIS 1 billion on this loan.
Other tycoons, who are following Africa Israel's debt settlement negotiations with bated breath to see if they can get away with defaulting on their own debt, will naturally be hurt as well. The Ofer family, let us recall, is already showing creditors the door over Zim's bond debt. And rest assured that if the public proves willing to pay a salary of NIS 3 billion to a manager who brought his company to the brink of bankruptcy, others will quickly follow suit.
In fact, if Leviev does get his NIS 3 billion salary from Africa Israel's debt settlement, it will prove that there is some truth to the claim that the banks are experts in managing credit, while we ordinary folk are amateurs and suckers.
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