Silver linings

There are mounting reasons for concern over our local corporate bond market, so much so that the mood begins to resemble the bunker mentality that followed 2008’s Lehman Brothers collapse. Israel’s own corporate bond market then registered record losses that only investors with strong nerves eventually recouped.

Analysts forecast that 2012 will test our pluck as well, with a looming credit crunch (even if not of 2008-like proportions), compounded by increasing populist pressures on the economy. That could be bad news for almost every Israeli household, as one way or another (quite beyond our individual control), we’re all invested in bonds – be it via pension, provident, mutual or educational funds.

There’s too much instability overseas not to affect us, and our markets react in teeter-totter motion to negative sentiment, particularly from the Euro Zone countries. There are homemade irregularities that make matters worse. It has become a fad among our tycoons to welsh on debts to bondholders, and with each report of another so-called “haircut” to investors, more and more panic and bail out, sending prices plummeting and turning quality bonds to junk. This inevitably ushers in a crisis of confidence, with risk aversion the expected corollary.

But even the aforementioned ominous clouds have some silver linings.

For one, the state comptroller’s active interest appears to have been piqued and he has opened an investigation. To be sure, the private business of assorted tycoons is outside the bounds of his brief, but not so the various government regulators whose job is to look after the interests of average citizens as well as the market’s wellbeing. The involvement of the state comptroller is sure, if nothing else, to light a fire under the regulators who had thus far exhibited remarkable lassitude.

Another bit of heartening news is that the large funds and their managers have to a degree awakened from their own stupor and have become far less forgiving regarding the penchant of tycoons to make up losses by not paying back their debts to bondholders.

Thus several of the largest mutual and provident funds approached Yitzhak Tshuva’s Delek concern about its intention to distribute NIS 100 million in dividends to shareholders, while the associated Delek Real Estate firm holds out on its bondholders. Tshuva, who controls 65 percent of Delek, has awarded himself NIS 60m. of the NIS 100m. total.

Although in the strictest sense Delek and Delek Real Estate are separate entities, there is increasing displeasure in the most influential financial circles that Tshuva disburses profits (and enjoys them himself) while claiming inability to honor undertakings to his bondholders.

That’s a surefire way of corroding confidence because the abiding impression is that one hand shaves off ordinary folks’ investments, while the other pockets millions.

Escalating public-opinion pressure appears to be softening some tycoons, which is the final morsel of good news. Egged on by fund managers, who also fear bad press, some tycoons reluctantly seek to do the right thing.

For instance, Ilan Ben-Dov, controlling shareholder of the Tao Tsuot investment consortium – which through its subsidiaries controls, among others, the Partner cellphone provider – at first offered his bondholders a debt settlement popularly dubbed as “the 60% haircut.”

Now, having seemingly modified his tack, he is trying to sell off hefty portions of Partner to meet some of his obligations and restore a modicum of confidence among the funds that leveraged his enterprises.

Nochi Dankner, who controls IDB Holding, is trying to sell 36% of the controlling interest in Clal Industries (of which a subsidiary, IDB Development, owns over 60%). If Dankner succeeds, IDB’s liquid resources would be sufficient to repay bondholders for the coming couple of years.

The bottom line is that some tycoons are dipping into their own asset reservoirs and are trying to behave more responsibly. In the hope that they pull it off and complete their sales, and that others follow their example, we should all feel somewhat encouraged – despite the ill winds blowing in financial markets both at home and abroad.