"Can the Agrexco bondholders sleep soundly at night knowing that the government will continue to support the company in the future? Or are we seeing a precedent in which the government will allow a company it controls to fail?" - "Globes" wondered a few months ago when the depths of the hole at the government-controlled agricultural produce exporter were revealed.
At the time, "Globes" believed that Agrexco would seek a debt settlement in the wake of its catastrophic business condition. What was unclear was how much, if anything, its bondholders would have to forego on the NIS 150 million bond.
We now have the answer. The Israeli government, which let Agrexco collapse, is demanding that the company's bondholders should forego 85% of what they are owed. This is worse than what Ilan Ben-Dov is now asking from the bondholders of Tao Tsuot Ltd. (TASE: TAO-M) or what Yitzhak Tshuva is asking of the bondholders of Delek Real Estate Ltd. (TASE: DLKR).
This is the same government whose finance minister was recently quoted as saying, "The taxpayers money will not be used to cover the lost debts of the tycoons." This was apparently an attempt to divert the fire of the social protesters away from the national leaders toward the indebted tycoons.
The message of the shirking of Agrexco's debt is problematic, to put it mildly. The State of Israel, with all the huge monopolies that it owns - Israel Electric Corporation (IEC) (TASE: ELEC.B22), Mekorot National Water Company, Israel Ports Development & Assets Company Ltd., the Israel Land Authority, and more - is the biggest tycoon of them all. If a government company offers such a bad deal to the bondholders - investment institutions who manage the pensions of the nation's citizens - then what can be expected from the debt settlements offered by tycoons who failed?
This is not just a moral issue. The State of Israel finances the operations of some its companies (such as IEC, Mekorot, and Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1)) by raising billions of shekels in debt on the capital market. The Agrexco debt settlement is small change in comparison, but it is liable to have far-reaching repercussions for the risk premiums of bonds issued by government-owned companies and for the cost of raising capital for these companies.
Published by Globes [online], Israel business news - www.globes-online.com - on August 25, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011