Text size

It doesn't happen often in the business world. Usually a company runs into trouble, starts to show signs of distress and only after a few months, or years, it finally dies. The illness starts to show well in advance.

Signs can be the erosion of equity, losses and cash-flow problems, among many others. But building developer Heftsiba died immediately - of a heart attack. Only 24 hours after Bank Hapoalim declined to honor the company's checks it entered its death spiral, and it only took two more days to die and for the corpse to be stripped.

Even the banks, which decided to put Heftsiba's managers and owners in their place by returning their checks, still do not believe how the company collapsed within hours.

"There was an inexplicable escalation here," they are saying at the banks.

Is it possible that Heftsiba collapsed against the will of the banks, their main creditors? It certainly is. Are they happy about it? Absolutely not.

Wednesday last week, Heftsiba was still considered an ongoing real estate company building thousands of apartments. The banks knew there was a mess at the company and its management was a failure - but the banks' intended to pressure the firm to get its act together.

But things got out of control. The news of the company's problems spread like wildfire, apartment buyers broke into their apartments, and the controlling owner, Boaz Yona, fled the country. All this was enough for creditors to try to grab whatever they could of the remaining assets.

Three main factors caused Heftsiba's quick death: the speed the information on its condition came out, the owner's flight abroad, and the fact that the affair involved housing - and homeowners.

When the Clubmarket supermarket chain collapsed the main victims were the large food suppliers: Osem, Strauss-Elite and Coca-Cola.

In Heftsiba's case, the main victims were apartment buyers who invested all their savings in buying a home.

These three factors accelerated the collapse, which we should remember stemmed from bad management and numerous signs of criminal behavior by the owners.

The banks are not happy since they are now forced to deal with bad debts and desperate apartment buyers taking their anger out on them. But at least they can take some comfort in the fact that they are not the only lenders involved in the story. The sinking ship is filled with institutional investors who bought Heftsiba's bonds.

Over the past five years companies have raised about NIS 120 billion in bonds sold to insurance companies, provident funds and pension funds. If the banks had lent this money instead, they would have made billions more in profits. That is why the banks' growth has slowed in recent years: the rise of the corporate bond market.

The competition to the banks has hurt their profits and given businesses an alternative. Nobody likes being an alternative.

Heftsiba's collapse has taught us that non-bank financing can be problematic and risky - and this may seem to serve the banks. But this is a mistake. If there is a serious economic crisis in Israel like that at the beginning of the decade, then we will see a bloodbath that will not differentiate between the money lent by the banks and that by institutional investors.

Everyone will suffer. Heftsiba's collapse at the height of an economic boom is only a wake-up call to what might happen when the current good times end.