Knesset passes law to curb bond "haircuts"

The Knesset yesterday passed the so-called bond haircut law by a 32:0 vote in its second and third readings. The bill was sponsored by MK Zahava Gal-On (Meretz) and MK Yitzhak Vaknin (Shas) and with the support of the Ministry of Justice in the wake of the growing number of debt settlements that involved heavy losses, or haircuts, for bondholders.

"This is a victory for the public against the system and the tycoons who have made haircuts of our pensions into the best investment in the market. From today, we tell Yitzhak Tshuva, who just this week asked for a 60% haircut for Delek Real Estate Ltd. (TASE: DLKR), and his tycoon friends: the party is over and the debt settlement bazaar is closed. Our law finally gives back the public control of its savings," said Gal-On.

Gal-On said that the new law includes the appointment of a commissioner to ensure that managers of public savings will not be allowed to agree to debt settlements involving discounts that serve the purposes of indebted tycoons at the expense of savers.

According to data collected by Gal-On's staff for the law, there were 53 debt settlements totaling NIS 15.8 billion in the past three years. These settlements amounted to 6% of the NIS 263.6 billion in issued bond debt as of mid-2011. Two of the biggest debt settlements were the NIS 8 billion settlement by Africa-Israel Investments Ltd. (TASE:AFIL) and the NIS 1.33 billion settlement by Zim Integrated Shipping Services Ltd.

The study found that there were currently negotiations between bondholders and controlling shareholders in company on at least 36 debt settlements, amounting to NIS 3.1 billion.

Gal-On added, "The new law will require financial institutions to use their authority and penalize tycoons who repeatedly fail to repay their debts. The commissioner will have the power to rule that a debt settlement does not serve the public interest and cancel it, forcing the investment institutions to liquidate a company that does not repay its debts. The bond market will change from a bazaar where everyone fixes things to approve speculative debt to a place where the public's money is protected."

Published by Globes [online], Israel business news - www.globes-online.com - on July 10, 2012

Knesset passes law to curb bond "haircuts"

Bill co-sponsor MK Zahava Gal-On: This is a victory for the public against the the tycoons who have made haircuts of our pensions into the best investment in the market.