Bottom Shekel / Ben-Dov Brought Tao Low, but the Watchdogs Missed the Signs

Ben-Dov bought Tao in order to institutionalize his stock market investment, but company's investments grew to frightening proportions of NIS 2.2 billion as of the end of 2007, nearly all funded by borrowing from the public.

A close look at the events that led Tao Tsuot to the brink of bankruptcy raises suspicions that everyone involved failed in some way, from Ilan Ben-Dov, who took control of the company in 2005, through the company's management, the company's board of directors, and even the public's money managers.

Ben-Dov bought Tao in order to institutionalize his stock market investments. Yet the company's investments grew to frightening proportions of NIS 2.2 billion as of the end of 2007, nearly all funded by borrowing from the public. Tao issued bonds, which institutional investors bought for savers' portfolios, and it borrowed from Bank Leumi. It did all this without Ben-Dov making even one meaningful investment with his own money in the company.

Moti Kimche

Tao's slide to the brink of bankruptcy brought harsh criticism for Ben-Dov. He came under fire for his first debt arrangement proposal in July, and his revised proposal, released Sunday, is unlikely to improve his image. He was attacked for attempting to give bondholders a 40% haircut, in the best-case scenario,while maintaining control over Samsung importer Suny, his group's main asset. Ben-Dov controls cell phone company Partner through Scailex, which is in turn controlled by Suny. But the arrows aimed at Ben-Dov appear to be enabling the institutional investors who financed his moves to escape the spotlight for their role in the fiasco.

Bank Leumi made sure that Tao would pay it back - it struck a deal that would have the company reduce its debt from NIS 312 million to NIS 60 million. Leumi understood what the institutional investors were ignoring - that if Tao was choosing to fund its long-term investments with short-term bank loans, in order to save on financing costs, this was an indicator that something was wrong.

Tao stated in response that "the attempt to paint Ben-Dov as someone who created an investment company with public money and who dumped it is not accurate or fair." It said Ben-Dov holds 27% of the company's B series bonds, making him the main casualty of the debt arrangement.