All That Glitters / Ampal's Debt: On Whose Side Are the Institutions?

The final settlement will point the way for others.

D-Day for the debt settlement deal for Ampal-American Israel Corporation is being put for another week (see story on page 12) after the Israel Securities Authority intervened in Monday's vote and said it wanted new information released.

Given the results of the abortive vote, the settlment proposed by Ampal's controlling shareholder Yosef Maiman there is a good chance that it will go do down in defeat and have to be revised.

There are larger settlements in the making, with higher defaults at stake, but Ampal is nevertheless shaping up as a test case: Will business barons continue doing as they please with the public's money, or will the public stand up for its rights? The answer is sure to affect the entire future of debt settlements, including those currently under way.

In civilized countries, control of companies that can't pay their debts is transferred to their creditors, who decide whether to continue running them, to liquidate or to sell. In Israel, which can't be considered a civilized country in this regard, the owners negotiate with their creditors, via the investment institutions that manage the public's savings, and propose a "settlement."

The essence of a settlement offer is throwing the public some bones, granting it a few rights and perhaps ponying up some additional funds, while getting creditors to agree to trim the debt owed them ("a haircut" ) but without forfeiting any control.

And that's exactly what Maiman is offering: Throwing in a few million dollars, allocating a few shares, promising not to draw out dividends, but insisting that generous management fees continue flowing to his minions and that he, naturally, retain control. Why would the public, by means of the institutions representing it, agree to such a questionable deal?

Here's where things get interesting, and portentous. Some of the institutions have rejected his proposal. The Meitav, Psagot and Epsilon investment houses came out against it, demanding that either the deal be sweetened or Ampal dismantled. Clal Insurance and Harel Insurance, however, have supported the deal.

Anyone examining the proposed settlement could see that the public could do much better, but only if it's willing to take a stand and go down to the wire, including liquidation and the appointment of a receiver.

Everyone in the capital market knows this, and as a high-ranking figure stated recently, off the record: "The tycoons and controlling owners fear just one thing: judges." In other words, the only thing big businessmen lose sleep over is the thought of finding themselves in court, with their companies' conduct and reasons for reaching bankruptcy placed under a microscope.

Maiman and Ampal openly displayed their contempt, sending threatening letters to Meitav, the Halman-Aldubi pension services group and other institutional investors in which they suggested that the investors' rejection of the debt settlement was driven by "ulterior motives." Recipients of the letters told us that that Maiman seems to think protecting clients and the public's purse constitute "ulterior motives."

But all this still doesn't explain why the insurance companies were in favor of a rotten settlement and even pushed for it? Figures in the capital market were unable to provide a definitive answer to this question, but they raised several possibilities.

For example, that Maiman may have persuaded them that if the settlement isn't accepted he would lose interest in the natural-gas pipeline, thus hurting institutional investors. But Maiman has a personal stake, apart from Ampal's, in the pipeline.

Another possibility that was raised is that the insurance companies are wary of exposing their directors to lawsuits. But the directors could face suits, perhaps from the public, if Ampal's settlement were accepted.

The third possibility advanced by market players was the most disturbing: that the insurance companies wanted the settlement to go through in order to avoid setting an Israeli precedent for taking over and liquidating a company, Ampal in this case, thereby changing the game rules.


Because the controlling shareholders of the insurance companies have business and social ties with tycoons who are well aware that they could be thrust into a debt settlement sooner or later.

"The battle over Ampal's debt settlement is actually the battle over IDB, over Ben-Dov's group, over the Tshuva group, and over all companies run by tycoons whose bonds are trading at junk yields," says a market executive.

Clal Insurance is controlled by IDB Holdings, whose bonds are trading at 60% to 95% yields, figures that make it clear how convinced the market is that a debt settlement for the group is merely a matter of time.

Insurance companies in favor of settling deny such allegations, insisting their decisions are purely professional in nature, if debatable. As proof, Clal Insurance points to its