The Supervisor of Capital Markets is showing weakness in the face of a "scandalous" insider transaction, in which IDB Development, a publicly traded company, plans to buy a privately owned, unprofitable company, MK Shelly Yachimovich complained recently. The remarks came during a Finance Committee discussion on the recent spate of difficulties by local tycoons in repaying their bond debt.
Yachimovich was referring to a proposal that IDB Development shareholders will be asked to approve tomorrow, to acquire the debt burdened and privately owned Ganden Tourism from its current shareholders, which include IDB's Nochi Dankner (who owns a 47% stake in the firm), for $1.2 million. "It's your responsibility to ask what checks were performed for the deal. Who they are serving," Yachimovich said to the Finance Ministry's Deputy Supervisor of Capital Markets, Arik Peretz. "The interests of the investing public, or those of I.D.B. Development's controlling shareholder?"
The Supervisor of Capital Markets' involvement could have been very effective, yet they are doing nothing, Yachimovich added. "Who is left to defend the public's interest? I find the Finance Ministry's powerlessness to be very disturbing," she said.
Peretz declined to respond.
The deal, Yachimovich said, has no justification. It's a failing, losing company that is rolling its debt onto IDB investors. The company, she understood, is carrying debts totaling some $140 million.
The issue deal will involve a loss of $100 million to public shareholders, plus debts to the banks, directors insurance, suppliers and others.
"How very generous of IDB." she commented. "What exactly is the justification for this transaction?"
But Peretz declined to accept her challenge, instead referring only to institutional investors.
"The institutional investor may well have done its homework beforehand," he said. "They are no fools if they think it's the deal of the decade. There is no clear and solid indication that their considerations are extraneous in this specific deal."
And as for the public aspect, Peretz assured the committee members earlier that the collapse of a single investment channel, even the largest group, would mean a loss of just 3% to pension savings in Israel.
A spokesman for the Finance Ministry said that institutional investors owe allegiance first and foremost to their savings clients. "We are certain that in this case too, the duty of allegiance will guide their decisions."
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