A 20-man Show

The uppermost echelon of Israeli business is an incestuous place

Zadik Bino and the Ofers have three things in common.

Both are among Israel's 18 richest families. Both own banks. And both have a joint financial partner named Bank Leumi (TASE: LUMI).

Leumi owns 19% of Bino's energy company Paz, and 18% of the Ofers' company The Israel Corporation (TASE: ILCO).

As The Israel Corp is negotiating to buy a 33% stake in Paz, that means Leumi will have a large and clear interest in the Ashdod oil refinery.

No matter how you look at it, Paz's acquisition of the refinery will mean that even fewer companies (or people) hold more of the power.

Not many can put up NIS 3.5 billion to buy a refinery. Only three groups competed for the refinery (Delek, Dor-Alon and Paz - Sonol stepped out of the race early on). All three were from the energy and fuel sector.

The cross-holdings between the families in Israel mean that neither Bino nor the Ofers can shop among banks for financing. At every turn they are likely to run into conflicts of interest.

Since Leumi is a major investor in both Paz and The Israel Corporation, it will be precluded from financing the deal. Presumably Bank Hapoalim will, at the head of a lending consortium.

What about Mizrahi-Tefahot Bank (TASE: MZRH)? It's partly owned by the Ofers and First International Bank belongs to Bino. So they're out.

That leaves only Hapoalim and Discount among the major banks. Add to that the fact that the Ofer family is one of Israel's biggest borrowers, and restrictions on any more large deals may cause financing problems for local banks.

A small group of 20 people here borrow and lend to each other, participate in deals and share risks with each other, and compete with each other over deals. A show with 20 people where the entire economy passes through their hands -- if not as buyers, then as sellers, or if not as sellers, then as lenders.