The Shekel Drops / Warning: Contagious Bug

Ilan Ben-Dov

There is a silence in the land. Five days have gone by since Ilan Ben-Dov declared he won't pay back his huge debt to the public - and nothing has happened. He's making off with 30 to 40 million of our tubs of cottage cheese and the earth isn't shaking. Pension and providence fund managers who lent Ben-Dov the money, and won't see it returned now, aren't screaming. They aren't making headlines.

Their regulator, capital markets commissioner Oded Sarig, hasn't issued new guidelines. He hasn't urged the institutionals into action and hasn't even issued a press release. He's mum about the danger facing the financial system over which he presides as regulator, and isn't demanding that the institutionals do their utmost to retrieve their money. Sarig is relying on the good judgment of the institutionals, who manage the public's money. He figures their exposure to Ben-Dov's risk is small.

Sarig doesn't seem concerned that the bug is contagious. And his boss, Finance Minister Yuval Steinitz, is not rushing to send his spokesman to the media either.

They are allowing Ben-Dov to shirk the huge debt he undertook while wearing his Tao Tsuot hat, and to continue owning Partner Communications, one of the largest companies in the economy and stock market, wearing a different one.

And what will happen when Partner or another Ben-Dov company tries to raise money? Everyone will line up and ask for some, even though it's clear that the owner isn't beholden to repaying loans.

This is because these are the rules of the game. Tao is a limited liability company, a separate legal entity whose controlling owner isn't responsible for its debts.

When Tao raised money by issuing bonds, the investors knew it could fall; it even said so in the prospectus. But Tao received credit from the capital market in part due to Ben-Dov and his liquidity, his reputation, the confidence that he needs a long-term relationship with the capital market, and the fact that he had never thrown a company to the dogs. This is also the reason he received a huge loan from Bank Leumi - a loan that he paid back of course. Yet when the rules of the game suddenly come to mind as a company goes bankrupt, the public finds itself scorned.

In 2008, when the troubles at Tao started and its bonds tanked, Ben-Dov was interviewed by TheMarker and reassured: "There is no chance that Tao will become insolvent. It will only happen if the economy contracts three years in a row and all the stock markets in the world fall. That's all clearly impossible. Our bondholders don't face any risk."

Three years later, the stock market is thriving, unemployment (in Israel ) is at rock-bottom, real estate prices are at a peak, the economy is humming and contraction is remote, a thing for far-off worlds. None of this has helped Ben-Dov's bondholders.

Ben-Dov has done well by the public, particularly in the field of dental health. He established a chain of dental clinics that treated thousands of children for free. He was also the driving force behind passing the law providing free treatment for children, a law that experts agree was revolutionary. The teeth of the young might be healthy, but the pensions of their elders are ailing.

Lev Leviev

In 2009, when Lev Leviev tried to get his Africa Israel Investments into a debt settlement, he thought exactly like Ben-Dov - rules of the game. But the economy resisted him, with the media providing a tailwind, and Leviev reached into his pockets, relinquished assets and brought money from home.

Zehavit Cohen

For weeks, a consumer protest has been waged in Israel and could yet bring real change in the economy. The change will be hard for certain companies. Sales of several firms took a hit and their images were stained. The chairwoman of Tnuva, Zehavit Cohen, received media coverage from which it won't be easy to recover.

But for Ben-Dov at Partner and his friends at the strong companies, nothing happened. The public rage isn't aimed at them.

This may end when people realize that the high prices they pay for tangible products seen at the supermarket are nothing compared to the real slaughter occurring far from sight - the slaughter conducted in the computers of banks, of insurance companies, of the large investment firms, and of the telecommunications companies. When this comes, it will hurt in the pocket.

Avi Wertheim

Yes, debt restructuring is a contagious thing, and over the weekend, Avi Wertheim, controlling owner of Inspire Investments, also announced he couldn't repay his debt and asked the courts for protection.

Wertheim was chairman of Bank Mizrahi and hates it when people don't repay debt.

Avi is the nephew of Muzi Wertheim, owner of the Central Bottling Company (Coca-Cola Israel ), Tara and the Keshet broadcasting company.

Yitzhak Tshuva

The bug is so contagious that this coming Thursday, Delek Real Estate is expected to announce how it intends to repay its huge, roughly NIS 2 billion public debt.

Delek Real Estate is owned by Yitzhak Tshuva, billionaire Yitzhak Tshuva, the controlling owner of most of the gigantic gas reservoirs discovered in Israel in recent years. And now he too wants to remind the public about the rules of the game. It can only be hoped that Tshuva's game rules are different from those of Ben-Dov.

David Baruch and Eyal Lapidot

Excellence Nessuah Investment House, managing tens of billions of the public's shekels, holds Tao bonds worth millions of shekels. In the meantime, we haven't heard anything from Excellence CEO David Baruch, who clearly knows he holds these financial assets as the public's trustee.

Also holding a large amount of Tao bonds for the public is The Phoenix Insurance Company. The Phoenix and Excellence are two companies controlled by Tshuva, the same Tshuva from Delek Real Estate who might declare on Thursday that he can't repay the debt.

This is the big test for Baruch and Phoenix CEO Eyal Lapidot: How hard will they fight the rich and powerful who don't return their loans, and how much will they remember that they are representing the public in this battle?

How well will they be able to differentiate between loyalty to the owner and loyalty to the public? How much are they infected by the diseases plaguing Israel's capital market?

Stanley Fischer

When Ben-Dov bought Partner, he obtained financing for the purchase from Bank Leumi, which also participated in buying shares. In recent months, two large groups have been trying to obtain financing in Israel to start a fourth cellular company to compete with Cellcom, Pelephone and Partner. They both dropped out of the Communications Ministry tender because Israeli banks turned their backs on them.

Bank of Israel Governor Stanley Fischer should probably examine their motives, especially now that it turns out that Ben-Dov isn't such a quality borrower.