By Yoram Gavison
The Ravivi Committee has asked Moshe Terry, a nominee to be chairman of the Israel Securities Authority, for clarifications regarding his political affiliations and business concerns. The committee will postpone debating his candidacy until it knows more. The possibility of a person that political taking key economic and legal decisions that may affect colleagues is disturbing. But while political connections may be a hot topic on the public agenda there are other, equally critical, problems with a political appointee heading the ISA. One such problem involves the finances of publicly-traded companies. Many have seen their investments in other publicly traded companeis crumble as share prices crashed, yet the debacle seems not to have reached the balance sheets. Koor Industries, for example, issued its reports Tuesday. It booked investments in ECI Telecom at $6.9 per share. This value may reflect the shareholders equity in the share price, but it is effectively three times the market value of the company. Koor's senior vice president and CFO, Yuval Yanai, explained that the management's decision was based on an assessment from Prof. Itzhak Swary, and that the share price on the market was irrelevant. But Yanai fails to explain why, if this was the true value, Koor was missing a golden opportunity to snap up such an attractive investment. Clal Industries, another ECI shareholder, also adopted Swary's valuation and saved itself NIS 360 million. Apparently the only place where the global telecoms sector has managed to get out of its current crisis is in the boardrooms of Koor and Clal Industries. Maybe it would be appropriate to recall that this is not the first time Swary's opinion has been sought. Before the merger between Clal Industries and Clal Electronics Industries, he set the value of ECI at $7.0-12.8 per share, when its trading price was around $7. In hindsight, one could say the stock exchange had done a far better job than Swary at setting a value on the telecoms company, and one could ask what makes Clal Industries and Koor think that in the future it will be different. The ECI case joins that of the 'temporary' falling value of holdings in the Fishman group, which has been going on now for more than a year- and the valuations that Prof. Amir Barnea has now prepared for Israel Salt Industries, according to which Bank Hapoalim is worth 75% more than its current trading value. Barnea, who is paid for the valuations he provides, thus saved Salt Industries from having to set aside enormous provisions for its investment in the bank, and from the need to improve its securities to Bank Leumi, which is granting the loans to buy out the largest bank in the country. One would expect that the ISA would enforce stringent rules on the quality of corporate reports, especially given the lessons from the U.S. Last November the ISA demanded that managers of public companies refer to the warning signs from the falling values of investments, particularly those listed as "fixed investments". The warning signs are the gap between market value and book value, and the period for which this gap has existed. The authority should have enforced these instructions rather than bowing to commissioned valuations. When we are talking about businesspeople with significant pull in the economy, there should be super strict adherence to such instructions.