The Shekel Drops / A Bad Example for Ilan Ben-Dov

Ilan Ben-Dov, owner of Tao Tsuot and also of the mobile services giant Partner Communications, announced that he can't repay Tao's bondholders. Ben-Dov proposes a debt arrangement, under which bondholders - including widows and orphans, and people saving for retirement - would forgive 50% of the debt Ben-Dov owes them.

The fact that Ben-Dov is one of Israel's business barons, with estimated personal wealth of about $300 million, has not led to the empathetic embrace of his demand that widows and orphans agree to forgo half the money they're owed (even if the request is perfectly legal ).

Agresco - Moti Kimche - 14072011
Moti Kimche

That was not the first time this week that widows and orphans were asked to forgo debt they are owned because a company owner with deep pockets refused to pay. The other case is already in court. There the deep pockets belong to none other than the State of Israel, which refuses to support the agricultural export company Agrexco and help pay its debts to the pension funds that bought its debentures.

It turns out that refusal to honor debt, even if the debtor has all the money in the world to pay it, is no longer cause for shame. It's not only the big businessmen who are shrugging off their duty to bondholders, so is the state.

If the great State of Israel can shrug off debt, then what do people expect from Ilan Ben-Dov?

The paper it's written on

The question is whether the state is truly shrugging off its duties and its refusal to pay Agrexco's debts proves that its word is no longer worth much.

It is tempting to cynically suggest that with Greece all but certain to default, and Ireland, Portugal, Spain and Italy standing in line (and maybe the great United States itself ), a nation's word isn't what it used to be.

Yet Israel does not belong on that list. Until now it has been absolutely diligent about keeping its word. Until Agrexco, that is. The precedent set there not only jeopardizes the credibility of the State of Israel, built over decades, it also sends a bad moral message to the entire Israeli marketplace. Note, for instance, the behavior of Ben-Dov.

Is the state to blame that the ethics of repaying debt to the general public are eroding? The answer is complex and has to do with the specifics of the Agrexco case.

Ilan Ben-Dov rules Tao Tsuot from on high. He is responsible for its management and has enjoyed its fruits (wages or dividends ) for years. Tao's failure is Ben-Dov's failure. Since he enjoys its fruits in fat years, one could make the value judgment that he should back up the company in lean years. (Note well: That's a value call, not a legal requirement ).

The State of Israel did not manage Agrexco. The company's deterioration took the state by surprise just as it did the bondholders. The state never ate of its fruit: Agrexco distributed its profits among client farmers. In December the state actually gave the company NIS 55 million in aid. In retrospect it was money down the drain.

Not all widows are equal

Moreover, at Agrexco there is a parallel to Ilan Ben-Dov: not the state, which owns just 30% of the company. It is the farmers who own 55% of Agrexco's stock, who ruled the roost and ran the company de facto, through representation from the Plant Production and Marketing Board.

The main casualties of Agrexco's implosion won't be the widows and orphan bondholders. Rather, the main victims will be the farmers who market their produce abroad through the company, the same farmers who are the controlling shareholders and who managed it. As such, they are also responsible for its collapse. They have told the court that if Agrexco falls they could fall with it. But the farmers have money: The production and marketing board has NIS 70 million in capital funds. Yet it did nothing to rescue Agrexco and it refuses to inject capital.

The Agriculture Ministry backs the board. "Investing the board's money in Agrexco wouldn't meet the farmers' needs," the ministry's spokesman told TheMarker. "The board prefers to put its resources into helping the farmers directly rather than by pouring money into Agrexco, which probably wouldn't help rehabilitate the company," the spokesman said.

So it isn't the state's baby that is circling the drain, it's the farmers' baby. The Plant Production and Marketing Board, backed by the Ministry of Agriculture, is trying to steer clear of Agrexco's debts - debts it is responsible for creating because of its management. The main casualties in the event the debts are not honored will be the farmers themselves. But the plant board thinks the state should foot the bill for its own mismanagement.

It turns out that there are widows and then there are widows of farmers, we learn courtesy of the Agriculture Ministry and the plant board, who lose no sleep at the thought of squeezing the widows who are just ordinary citizens.

And no, none of that has any implications for Ben-Dov's duty toward his bondholders.