It has been three years since the start of the write-off wave that the country’s tycoons sought from the public’s savings (in part in the form of pensions invested in their companies). This paper has crafted dozens of pieces on the topic, and the public has become acquainted with terms like business concentration, debt rescheduling and haircut.
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It seemed as if the Israeli capital market had adopted a key principle: If a creditor, tycoon or businessperson doesn’t pay a debt and come up with a fortune through a debt-rescheduling and recovery plan, he’ll lose control and the company will be run by creditors.
This approach didn’t come easily. A number of tycoons tried, sometimes successfully, to impose haircuts on their creditors and still maintain control, including of their corporate jets, salaries and benefits. In 2009 they led a campaign to use taxpayers’ or savers’ money to rid the tycoons of part of the debt. The campaign in the tycoons’ newspapers failed, partly because of TheMarker's coverage.
But as requests for debt rescheduling proliferated, along with public pressure on institutional investors not to give in, the capital market demanded its version of social justice. By the time Moti Zisser’s Elbit Imaging collapsed, the public had insisted that he lose control.
And when the courts were called on to decide on Nochi Dankner’s IDB group, he chose to hand it over to creditors and others who could inject money.
The same principle began to filter into relations between the tycoons and their bankers. Bank Leumi CEO Rakefet Russak-Aminoach tried to write off 150 million shekels ($37.5 million), but the outcry on social media headed it off. At this point, the idea that tycoons will get that kind of break without losing control of their companies seems impossible, as long as the public is aware of the situation.
But there is one exception, and that is Eliezer Fishman, for whom the rules seem different. He remains in control of a real estate, retail, media and energy empire, but why? Here are some questions and answers.
What is his debt load and what are the circumstances?
He has personal debts of between 4 and 5 billion shekels, almost all owed to Israeli banks. These aren't the debts owned by his publicly traded companies Jerusalem Economy, Industrial Building and Mirland Development, but personal debt in family companies.
Banks Hapoalim and Leumi are each owed about 1.7 billion shekels, Israel Discount Bank about half a billion shekels, Mizrahi Tefahot between 300 and 400 million and Union Bank between 200 and 300 million. These are much larger sums than what Dankner owed.
If those are the debts, what assets does Fishman have?
The banks acknowledge that his assets are 1 to 2 billion shekels less than his debt and the creditors therefore know that their chances of receiving everything owed are slim. Fishman’s assets include shares of publicly traded companies, real estate, shares in the Yedioth Ahronoth newspaper, the Globes business daily, retail chains, gas stations and a firm that serves Brazil's cellular telephone sector.
In recent years, the banks began to record debt from Fishman as uncollectible. TheMarker obtained the numbers, coming in at about half of Fishman’s personal debt, or between 2 and 3 billion shekels. In the last quarter alone, the banks made provisions for about 400 million in uncollectible debt. In the case of smaller Union Bank, provisions for Fishman’s debt wiped out nearly its annual profit.
So what is uncollectible debt exactly?
It’s not like a haircut suffered by creditors. The banks are still full creditors of Fishman’s, and they will only be written off in the event of a debt-rescheduling agreement. Several weeks ago, Fishman and businessman Beny Steinmetz sought such a deal with Leumi, but the bank backed off over concerns of public pressure.
In any case, when banks provision for uncollectible debt, they drop the debt from their assets and thus reduce their profits. Since the public holds most of the shares of the big banks, the public feels the pinch.
If the banks have already recorded Fishman’s debt as uncollectible, why don’t they take over his companies?
That’s the major question with every such provision. The banks say they don’t like to do so because they don’t know how to manage companies. And in the case of Fishman’s deal with Leumi, he would have to consent to asset sales.
The banks could take over the companies and have professionals do the managing. Certainly someone other than Fishman and his children must be capable of running his real estate and retail firms. The banks do the same thing when they foreclose on homes or stores.
So why don’t they in Fishman’s case?
This is only conjecture. Maybe they don’t want a confrontation with Fishman, just as they didn’t want one with Dankner. Fishman is part of the club that the banks also belong to.
Maybe they’re wary of offending Fishman in part due to his media holdings, including Globes. Maybe the banks believe that after a few rounds of debt rescheduling, Fishman will find his feet, or maybe they’re simply afraid to go to court and break up his empire. That could involve disclosure of his past loans and how the banks handled them.
So who’s at fault?
The two main players who have been dealing with Fishman’s debt are Russak-Aminoach and Bank Hapoalim CEO Zion Kenan, but they’re simply the latest generation of bank heads to inherit Fishman’s debt.
Previous bank CEOs boosted Fishman’s credit to about 4 or 5 billion shekels, and after things went awry, they didn’t address the problems. Fishman has been in trouble for years.
And then there’s David Zaken, the Bank of Israel’s banking supervisor. He’s well aware of the numbers and the agreements with Fishman, as well as Fishman’s influence on the banking sector. He must have pressured the banks to set aside uncollectible funds, and to do it over several years so as to moderate the effect on profits.
But that’s half the task. He didn’t pressure the banks to eliminate the debt and break up the Fishman group, and the debt ballooned.
So what happens now?
If Fishman were just another bank customer, it would be simple. The banks would foreclose on the assets and put them up for sale. After making doubtful-debt provisions, they probably wouldn’t lose another penny and maybe even would profit.
How? If the assets are sold for more than the value of the bank’s secured interest, the banks can recover part of their losses.
But Fishman is no ordinary customer. He puts obstacles in the way of asset sales and demands more than accepted market value.
The banks have already recognized the debt as uncollectible. Fishman is in tough straits and in practice the assets are already the banks'. But Fishman is still managing them.