Leviev to Float in Poland

I do not normally discuss matters that relate to real estate. I am not going to depart from this custom here, even though the company in question is in the real estate business.

Lev Leviev has several public companies trading on different international stock exchanges, and also owns private companies. This in of itself is innocent enough.

What complicates matters (for me at least) is the fact that there is overlap between these various entities, and with particular reference to his private company interests, which are of course not transparent to the shareholders in the public companies.

Sadly, I am not the naive guy I once was! This leads me to the possibly cynical, but at best skeptical position, whereby I do not have full trust in managers/owners of businesses who have one business for the shareholders and a separate private business for themselves. Unfortunately there can be slips leading to a serious conflict of interest between someone like Leviev and the shareholders in his various public entities.

I add to the above fact that Africa Israel, his main public company, listed in Israel, is still very much in the overhang period following one of the largest debt restructuring stories in Israel's history.

It only partially surprises me that he plans to IPO one of his vehicles on the Polish stock exchange.

I would strongly urge Caveat Emptor (buyer beware) - aligning management, controlling and passive shareholders interests is one of the best ways of avoiding the types of mess that we have seen unfold during the recent financial and real estate meltdown!

5 Notes about Lev Leviev

1. All the press in Israel were "shocked and surprised" by the news that Leviev-controlled Africa Israel has admitted that it cannot see its way to paying off all of its debt and will need to restructure. The only real surprise is how long it has taken for them to admit it!
2. Of the debt mountain that Africa Israel has built up, the vast majority has been to the institutions who have blindly subscribed for its bonds during the bubble years, without worrying too much about the underlying ability of the company to repay.
3. The banks have a relatively minor exposure, thus there is no dramatic impact on the stability of the financial system. Within this amount, it is worthwhile noting that Bank Hapoalim has a significantly larger exposure than Bank Leumi - is this bad luck, or bad risk management? Given the events of the last 18 months, it would look more like the latter than the former.
4. It is crucial that the bond holders act firmly with Leviev, otherwise the genuine ranking of bonds in "tycoon" controlled companies - like Leviev, Tshuva, Fishman etc will be called into question, hence undermining future confidence in the corporate bond market.
5. How comforting to know that the Israeli market can withstand problems at one of its biggest companies and bond issuers without overall market panic setting it. This is a crucial period for the markets, during which it is important that moral hazard is not created by weak treatment of failing management teams.

I have a great deal of admiration for all of the "big guns" of the Israeli capital markets. They are not afraid to travel far and wide to seek out investment opportunities. This does not mean that our pension fund investors blindly follow them everywhere they go, without creating the crucial distinction between risk levels at different companies.

Finally on a personal note. Those of you that know me well, know that one of my hobby horses is conflict of interest. Whilst entrepreneurs like Leviev and Tshuva have both public and private entities doing substantially the same thing, the public's money should not be used to fund their public entities, as there is no real protection against what is an obvious and in-built conflict of interest. Our financial institutions must protect the public from this situation if the Tel Aviv capital markets seek to continue its maturing process whilst trying to attract the best investors from around the world.