The Gaydamak Fireworks Show

Arcadi Gaydamak is organizing a giant Independence Day barbecue for the People. Anybody prepared to brave the traffic jam on Rokach Blvd that day, at the approach to Park Hayarkon, not to mention risk being squashed into hamburger by the crowds shoving in line, may win a skewer of charred bird at the expense of the publicity-loving billionaire.

But the Russian-Israeli businessman's real fireworks show is taking place somewhere else entirely: Ahad Ha'Am Street, home of the Tel Aviv Stock Exchange, and it's been going on since Passover.

Yesterday too investors were haring for securities in Ocif Investment & Development (TASE:  OCIF), the real estate company that Gaydamak bought.

In the eleven days since Doron Aviv and Dafna Harlev announced they'd sold the controlling interest in Ocif to Gaydamak for NIS 580 million, investors have been scooping up its shares, bonds, warrants, on tremendous turnover.

No less than NIS 67 million worth of Ocif stock changed hands yesterday, on Tuesday, and turnover mounted to a gargantuan NIS 115 million the day before.

Ocif, which lost an accrued NIS 100 million and more in the last four years, saw its shares shoot up by 55% to a market cap of NIS 940 million, which is almost the company valuation at which Gaydamak bought in.


Since April began, aggregate turnover in Ocif stock has reached half a billion shekels. Several hundreds of millions more changed hands in trading the company's bonds and warrants.

In fact, all the shares not held by the Avivs and Harlevs (which are marked for Gaydamak) changed hands at least once this month. As we can assume that not everybody sold their Ocif shares, we conclude that speculators are jumping in and out of the stock.

Warrant 9 leaked 29% yesterday to NIS 254 per unit, lifting its value far beyond the pale, or the fair, relative to the share price. The question is, have Tel Aviv players completely forgotten the fundamentals of investments? Has the name of Gaydamak made them completely lose their heads?

The terms of the warrant enable it to be converted into shares by the end of May 2009, at an exercise price of NIS 115. The conversion ratio is 1:1, meaning that one warrant gets you one share. The share today is at NIS 203.50.

To get one share, you have to buy a warrant for NIS 254, and pay another NIS 115, resulting in a naïve value of NIS 370.

You can't explain that incongruity using financial arguments. One possibility is that the investors soaking up these warrants at that inflated price have no idea what they're doing. They don't understand. The warrant was the best-performing security on the marketplace this week (returns of 147%); since the Gaydamak takeover it's returned 650%. In other words, possibly, the buyers are ordinary joes, or Yossis, who want to make money but don't know how to price options.

But turnover in the Ocif warrants reached NIS 8 million yesterday, indicating something else entirely.

Buying convertible bonds and warrants reflecting negative returns to maturity is not a matter for just-yossis wanting a piece of Gaydamak, and I don't mean kebab. Clearly it is not just the general public going nuts.

Something weird is going on, and that goes for the tremendous hype regarding real estate stocks in general, and the astonishing increase in land values in Russia (the whisper is that Gaydamak will be selling his Russian properties to Ocif).

Who are the buyers? Have major investment institutions gone insane? Or are there big, wealthy forces involved - potential partners (or enemies)?

The only thing we know for sure is that Gaydamak has fanned the flames on the marketplace dramatically high.

To join a TheMarker Café discussion on Gaydamak and Ocif (in Hebrew), click here.