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If businessman Gad Zeevi was watching the trading screens yesterday, then he must have had a lousy day again. In the morning Bezeq stock seemed to have flattened out, possibly helped by the PM's announcement that the phone company's privatization would proceed despite the lack of eager buyers.

But by noon Bezeq stock was back in the doghouse. Bezeq ended the Monday session down 1.5%, completing a 15% loss this month. Meanwhile the shekel started to weaken further against the dollar.

If the loans Zeevi took to buy his 20% Bezeq stake were denominated in dollars or some other foreign currency, which is usual for huge sums, then his financial situation turned truly sad this month. Not only has his Bezeq interest shrunk in value, but exchange rate gaps will cost him a pretty penny too.

Indeed, sources in the know said yesterday that the well-padded safety cushion the banks demanded, when lending Zeevi a not-small fortune to buy his Bezeq stock, isn't thick enough. Not to withstand the serial shocks the entire telecommunications industry, and Zeevi himself, have suffered in recent months.

Market sources estimate that a year ago, Zeevi took advantage of the boom to refinance his position, using his Bezeq stock as collateral. He took advantage of the theoretical profit on his position, as Bezeq shares soared, to borrow more money from the banks.

Zeevi also gave the banks a letter of guarantee for $150 million (long since converted into a bank deposit), over and beyond the collateral in the form of Bezeq shares. But meanwhile, his principal and interest payments on the loans have inflated to beyond the value of his collateral, shares + deposit.

How to create a truly stupid situation
Confused by this financial gibberish? Let's spell it out. The amount Zeevi owes the banks is greater today that the market value of his securities. He has breached the terms of his original loans. Now the banks want more collateral. Zeevi has been leaking Bezeq stock onto the market in recent months, not at his own initiative, but at the banks'. His stake is down to 19%.

Since for now Zeevi can't come up with more collateral, the banks are essentially seizing his Bezeq shares. Now they have to decide whether to let him try to put together more collateral, or to find a buyer for his shares ? or to take the shares themselves.

Talks are ongoing, but assuming the market does not suddenly leap for the skies, the bottom line is pretty clear. Israel's five biggest banks look pretty likely to wind up owning 19% of the national phone company, a stake worth some NIS 2.6 billion.

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Zeevi is not the first businessman to default on bank loans. In these soggy times, plenty of companies are shirking principal and interest repayments. But his case involves particularly vast sums and a government company that's been in the throes of privatization for five years.

It is not clear how handing over a major chunk of Bezeq's shares to the banks helps the state privatize it.

It is easy to see how this stupid situation makes Bezeq even harder to sell.

Which brings us back to that old question, of how Zeevi financed his acquisition of Bezeq shares. He had two sources of capital. One was Mikhail Chernoy, an interesting personality whose name keeps cropping up in unpleasant contexts. The other was that consortium of five Israeli banks.

One Zeevi, one "authorities", two opinions
The state was astonishingly relaxed about allowing Zeevi to buy 20% of the phone company, especially seen against the harrowing obstacles it threw in the path of British giant Cable & Wireless. C&W grimly held onto its 20% Bezeq stake for five years, before throwing in the towel in disgust and selling it to the Israeli businessman.

Zeevi somehow neglected to tell the authorities about his buddy Chernoy who helped him buy the shares. Meanwhile, the Bank of Israel ? certainly part of the "authorities" - had already investigated Zeevi's affairs seven years back and decided against letting him take over Bank Mizrahi.

Which begs a question. Why was Zeevi, deemed unfit to buy a tiny bank, found suitable to buy 20% of the national Israeli telecommunications carrier? And to contend for the controlling stake?

Bezeq is a powerful company. A monopoly in its sphere. One day the banks will manage to dump their Bezeq shares, but meanwhile, the money they lent Zeevi will burn a hole in their balance sheets.

The Bank of Israel, which had nixed Zeevi in the past, decided yesterday to force the banks (which had happily extended Zeevi the credit) to increase their provision for doubtful debt, despite tearful protests from the banks and the Finance Ministry, too.

Maybe the Bank of Israel was just panicking, as the banks claim. But one has to wonder what other debt-monsters are lurking in the bank books, disguised as successful businesses. We would be wise to assume that Zeevi is not a lone case, and that the banks are holding onto a lot of shrunken collateral that may be even less worthy than Zeevi's.