Voices at investment institutions and in the media are again calling on Delek Real Estate Ltd. (TASE: DLKR) 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 has 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 multibillionaire according to rankings by Israeli and foreign magazines. It is highly unlikely that he can personally pay NIS 500 million, 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.
The myth about the tycoon's endless wealth is not the only prevailing myth about them. Here are some others.
Tycoons have a Midas touch in their investments
Reality: Like any investor, Israel's tycoons have made both good and bad investments. 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. (TASE: DLEKG) 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 Corp. Ltd. (TASE:IDBH) 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 multibillion shekel gain on his investment in Credit Suisse Group AG (NYSE: CS; SWX: CSGN; XETRA: CSGZ), which currently has a paper loss of billions of shekels on the very same investment.
That's how it goes. The resume of Idan Ofer of Israel Corporation (TASE: ILCO) includes loss-making Zim Integrated Shipping Services Ltd., Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) controlling shareholder Ilan Ben-Dov also controls collapsing Tao Tsuot Ltd. (TASE: TAO-M), and El Al Israel Airlines Ltd. (TASE: ELAL) 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: Close 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 genes. Investors in KMN Capital Ltd. (TASE:KMNK-L), controlled by Tshuva's son-in-law Roni Elroy. Inspire Investment Ltd. (TASE:INSP) is controlled by Avi Wertheim, the nephew of Mizrahi Tefahot Bank (TASE:MZTF) and Central Bottling Company Ltd. (Coca-Cola Israel) shareholder Mozi Wertheim,
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 amongst 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 legitimate.
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 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 non-payment of debts by one of his companies that is part of his business pyramid is liable to harm future capital raisings 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
Reality: Last year's debt settlement by Africa-Israel Investments Ltd. (TASE:AFIL), controlled by chairman Lev Leviev, included his promise to inject an unprecedented amount of personal capital in order to keep control of his company: NIS 750 million. 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 run far from the public's discerning eye, and these diamonds created the wherewithal for inclement times.
Published by Globes [online], Israel business news - www.globes-online.com - on July 28, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011