Oligarchic Israel in Fear of Lev Leviev Insolvency

First there was a dramatic but not unexpected announcement by Africa-Israel this morning that they lost NIS 1.52 billion in just the second quarter. More importantly Africa-Israel’s financial release is bracing the creditors for possible eventuality when Africa-Israel will not be able to meet its debt obligation. Globes – Asset sales may not be enough to pay debts. Africa-Israel points to five problems:

1. “The sale of income-producing properties has reduced its cash flow and hurt its core business.
2. Current market conditions have made it difficult to obtain financing to develop and redevelop properties, as well as to recycle financial debt needed for current operations. The credit crunch has affected the obtaining of financing by potential buyers of properties that Africa-Israel has put up for sale, and made it harder to get a closed deals at a good price.
3. It is not possible at this time to rely on an improvement in the company’s main markets, such as the US, Eastern Europe, and Russia.
4. The greater uncertainty reduces the company’s bargaining power with potential buyers of its properties, while it also tightening the deadlines for the repayment of debts, which makes it harder to complete negotiations for the sale of properties.
5. These negotiations reduce management’s time to deal with the development and redevelopment of the company’s properties, execute the company’s long-term strategy, improve its current and future cash flow from projects, achieve profits, and create value for the company’s properties for the benefit of its shareholders and bondholders.”

What is the remarkable is the fear in the Israeli banking system is the insolvency of the individual oligarchs not the corporate bankruptcies. Globes reports:

“The main fear in Israel since the start of the crisis has been the collapse of one of the country’s biggest tycoons such as Africa-Israel controlling shareholder Lev Leviev. Israel’s two largest banks Bank Hapoalim and Bank Leumi are expected to be the worst hurt by Leviev’s woes. The estimate is that Leviev owes Hapoalim more than NIS 1.5 billion through his privately held Memorand Ltd. and an additional NIS 500 million to Leumi through companies he controls.”

Much has been written about the unholy symbiosis between the Israeli oligarchy and the financial and political systems. But what emerges is that the banks financed the oligarchs at an astonishing rate, this in turn fueled oligarchic expansion into the Russia, Europe and USA and now the chickens are coming home to roost. Let me just paraphrase this, at the time when Israeli banks had an opportunity for extending capital to local innovation, they extended billions in concentrated and centralized capital to the oligarchs to finance the international speculations.

Tagged as: business, israel, oligarchy, real estate, recession