(photo credit: Courtesy)
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
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
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.
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
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%
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
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.
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.