Voices at investment institutions and in the media are again calling on Delek
Real Estate Ltd. controlling shareholder Yitzhak Tshuva to personally contribute
at least NIS 500 million as part of the failing company’s debt settlement –
because, after all, Tshuva is a tycoon.
Last week, Globes reported on
demands that so-called tycoons repay hundreds of millions of shekels from their
fortunes if their companies cannot repay their debts. The demand is completely
justified: Tycoons have the moral duty to do everything they can, including
providing substantial amounts from their own money, to cover the debts of
companies they control.
In practice, however, there is little chance that
hundreds of millions of shekels will make their way from the tycoons’ personal
bank accounts to debt settlements, for one simple reason: Most of Israel’s
tycoons of the past decade made their fortunes through leveraged acquisitions
that have put them in hock up to their necks to the banks. Few, if any, of the
tycoons have large amounts of personal cash to contribute to a debt settlement,
if one is required.
This is true of Tshuva, a multi-billionaire according
to rankings by Israeli and foreign magazines. It is highly unlikely that he can
personally pay NIS 500m., even if he wants to.
And what is true for him
is also true about his fellow members in the tycoons club, some of whom have
already gone through debt settlements in the past few years.
about the tycoons’ endless wealth is not the only prevailing myth about
Here are some others: Tycoons have a Midas touch in their
Like any investor, Israel’s tycoons have made both good and
The difference is one of scale, which is a function of
the almost unlimited credit given for their investments – and therefore the
scale of their profit or loss.
Tshuva’s takeover of Delek Group Ltd. has
been a dizzying success, but Delek Real Estate is a dismal failure. The Tshuva
who made a fortune with the acquisition of New York’s Plaza Hotel is the same
Tshuva who has lost a fortune in the ambitious and unrealized Plaza casino and
hotel in Las Vegas.
Nochi Dankner, who carefully acquired IDB Holding
Ltd., is the same Nochi Dankner who misread the map when he founded
charter airline Israir Airlines and Tourism Ltd.
He is the same Nochi
Dankner who made a multi-billion-shekel gain on his investment in Credit Suisse
Group AG, which currently has a paper loss of billions of shekels on the very
That’s how it goes. The resume of Idan Ofer of Israel
Corporation includes loss-making Zim Integrated Shipping Services
Partner Communications Ltd. controlling shareholder Ilan Ben-Dov
also controls collapsing Tao Tsuot Ltd., and El Al Israel Airlines Ltd.
controlling shareholder Oded Borovich also owned Clubmarket, once Israel’s
third-largest supermarket chain, which went out of business.Tycoons’
relatives have a good chance of becoming tycoons, too.Reality:
family ties may open the doors to banks and institutional investors’ credit
departments, but the ability to build a thriving business empire is not in the
KMN Capital Ltd. is controlled by Tshuva’s son-in-law Roni Elroy.
Inspire Investment Ltd. is controlled by Avi Wertheim, the nephew of
Mizrahi Tefahot Bank and Central Bottling Company Ltd. shareholder Mozi
Roni Elroy and Avi Wertheim both managed businesses for their
rich and famous relatives, and both failed dismally when they went into business
for themselves. Debt-beset KMN has a going concern warning, and Inspire is
operating under a stay of proceedings.Tycoons will sell their private
jets and mansions to repay companies’ debts.Reality:
Who among us is not
jealous of the tycoons’ lifestyles? They build stunning homes, host glittering
parties, go on weekends abroad in private jets and make millions of shekels a
year. Demands that they cut back and live a bit more modestly when their
businesses fail to meet their obligations are understandable and
But there is a separation between the private and the
corporate, and it is called “limited company.” Unless a controlling shareholder
personally guarantees the corporate bonds, he cannot be compelled to sell
personal assets to help pay for a debt settlement. Anyway, the sale of a mansion
in Kfar Shmaryahu, a Mercedes Benz or a yacht may yield a few million dollars
and make good PR, but it is financially immaterial in the face of the public
companies’ mountain of debt.
Tshuva will avoid a debt settlement by Delek
Real Estate out of honor.Reality:
Yitzhak Tshuva really does care, as
demonstrated by the hundreds of millions of shekels he has injected into Delek
Real Estate over the years to prop it up. Tshuva, like Ben-Dov and some others,
knows well that nonpayment of debts by one of his companies that is part of his
business pyramid is liable to harm future capital raising by other companies and
the terms demanded of them.
Nonetheless, it seems that Tshuva has reached
that point, unless he carries out a fire sale of his business, and he can no
longer provide the amount necessary to meet Delek Real Estate’s huge debt. A
debt settlement by the company is already a fact.If Lev Leviev can bring
money from home, other tycoons can, too.
Last year’s debt
settlement by Africa-Israel Investments Ltd., controlled by chairman Lev Leviev,
included his promise to inject an unprecedented amount of personal capital, NIS
750m., to keep control of his company. But Leviev is the exception. In contrast
to most of his colleagues in the tycoons club, whose assets are highly indebted
public companies, he made most of his fortune in diamonds and mines that are
operated far from the public’s discerning eye, and these diamonds created the
wherewithal for inclement times.