Well, That Just About Wraps It Up for Zeevi - Maybe

As one bank calls for the receivers, the others doubt it will make things better (or worse)

A few Israeli banks felt a bit uncomfortable last week when it was disclosed that the First International Bank of Israel (FIBI) wants to appoint a receiver for businessman Gad Zeevi's companies due to debts of NIS 278 million.

Zeevi is the most prominent businessman among the large borrowers who have run afoul of the banks in the past three years. The possibility that more of Zeevi's assets will be appropriated and put into receivership raised fears that the Pandora's box, which has already led to provisions for doubtful debts amounting to NIS 800-900 million stemming from Zeevi's business transactions, would be reopened.

The hasty examination by various banks, mainly Bank Hapoalim and Israel Discount Bank, revealed that the step taken by FIBI will not force them to make additional provisions for doubtful debts. "Any provisions necessary for Zeevi have already been made," bank sources said.

Even so, the banks admitted that FIBI's move is liable to have a lasting effect on suppliers or customers of a number of companies in the Zeevi Group if a receiver is indeed appointed. Should this happen, the banks may not have to make provisions for the credit owed by the Zeevi Group, but further provisions quite likely will be necessary in connection with the second and third circles of suppliers-customers-debtors connected to Zeevi's dealings.

Three of the four sections of Zeevi's business empire are: the 20-percent stake in Bezeq, which was transferred to the banks' receiver, attorney Alex Hartman, following the non-payment of interest to the consortium of seven banks that financed the purchase at a sum of $370 million; the Mirage Group, which includes Japanauto (the Israeli importers of Subaru), the Elisha Hospital and other real estate assets, oil refineries in Puerto Rico, and the Swiss company, Inpecos, which mediates oil deals; the Galaxo group of companies, which includes Zeevi Holdings, Malam Systems, Keshet Broadcasting, Ace Buy and Build and Clal Investments.

The fourth section is based on the dealings of Clal Trade, which Zeevi acquired in 1998 for NIS 750 million of credit that he received from FIBI. That was the first loan Zeevi took from FIBI, and it formed the basis for close cooperation in the following years, making Zeevi a "house customer" at FIBI and a close friend of then-CEO Shlomo Piotrkowsky.

In the past, Piotrkowsky said that he financed the Clal Trade deal based on long-term considerations that included the transfer of a significant share of the companies in the Zeevi group to FIBI. Those were the gay days when Israeli banks courted big businessmen, seducing them with low interest rates and attractive financing terms that led them to take big risks.

The crack in the Bezeq deal

Zeevi's troubles began when he did not keep up interest payments on the Bezeq deal. Mikhail Chernoy's involvement in financing Zeevi's equity in the Bezeq deal was exposed. Things have gone downhill since then, and a rift developed between FIBI, headed by Piotrkowsky, and Zeevi. The current stage of requesting a receiver for the five strongest companies in the Galaxo group is a result of Zeevi's failure to reach a repayment agreement with the bank.

The request filed by FIBI for the appointment of attorney Lipa Meir as receiver for Galaxo and other holding companies in the group notes that the companies stopped meeting their obligations two years ago. The bank claims that for a long time it tried reaching understandings with Zeevi over the debt arrangements and even gave him several extensions, but to no avail.

Some of the credit that FIBI extended to the companies was meant for repaying debts to various creditors, including the Union Bank of Israel (Bank Igud), which had filed a liquidation petition as far back as two years ago. At that time, FIBI wanted to prevent the snowballing of the financial troubles, and preferred to placate the Union Bank by extending credit to Zeevi so that he could pay his debt of NIS 9 million to Union.

In retrospect, that move only stalled the inevitable. Although Zeevi tried to find investors to buy various holdings in the group of companies he controled, he was unsuccessful. Zeevi said last week via his spokesperson that he is not shirking responsibility for his debts to FIBI, and that he is making every effort to reach an arrangement with the bank as soon as possible.

Every bank for itself

Zeevi's business is concentrated in three banks: Hapoalim, Discount and FIBI. Bank Leumi and the United Mizrahi Bank have not financed any of Zeevi's dealing, apart from the purchase of Bezeq shares. While the legal steps against Zeevi in the Bezeq matter were coordinated among all seven banks that financed the deal, the financing of other acquisitions was done separately and each bank has different levels of exposure and collateral.

One senior banking official said that FIBI's request to appoint a receiver for the Galaxo group was not supposed to affect the other banks. Even sources at FIBI claim that the provision for doubtful debts related to Galaxo has already been made, mostly in 2002 and some in 2003. The official added, however, that it is still difficult to sum up the Zeevi affair and say definitively that there will be no more provisions as a result.

"Most of the provisions have been made," said the official. "Zeevi's activities and the securities for his transactions have already been incorporated into the banks' financial reports. The massive sums are behind us."

Still, he conceded that FIBI's legal steps against Galaxo would probably affect Ace and other companies, although they should not cause a wave of bad debts.

One side effect of FIBI's request for a receiver for Galaxo is already evident: Attorney Yossi Segev, who is representing Zeevi in the Bezeq affair, has filed a petition for the liquidation of Clal Investments.

In March 2003, Clal was ordered to pay Segev $2.3 million plus 11 percent dollar interest since 1990 - a total of NIS 40 million. This sum was for damages caused to Segev's investment portfolio resulting from embezzlement by Arie Goldin, Clal's general manager until 1990. Segev has collected just NIS 2.5 million so far, and as long as Clal was under Zeevi's control, Segev preferred to negotiate with him to receive the payment.

Now, with FIBI demanding that the company be transferred to a receiver, Segev has reached the logical conclusion that if a receiver is appointed, his interests may not be served. "The whole time the matter was being handled opposite Zeevi, who is the one who is supposed to pay me, there was no problem - but now I have to act so that the monies in the company that are owed to me are not taken away," Segev says.

Segev is due to represent Zeevi in a damages lawsuit the businessman is planning to file against the state for not privatizing Bezeq on time and for Bezeq's capitalizing NIS 1.6 billion that was supposed to be disbursed as a dividend to shareholders. Zeevi claims that he was planning to use his dividend money to pay the interest on the loans he had taken to buy the shares.

Segev is now examining the implication of his liquidation petition against Clal on his continued representation of Zeevi in the Bezeq affair. In the meantime, Segev expressed reservations regarding FIBI's decision to appoint a receiver for Galaxo. "Where will they find someone who knows how to run the business better than Zeevi? Will a receiver make the assets worth any more?"