Boons from the state

Business Ezra Harel-style just isn't that great without grease
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Israeli-Russian tycoon Lev Leviev, who made most of his wealth from the diamond trade, once said that he wasn't surprised to see new millionaires springing up all over the place in recent years. "Most of them made their money through mistakes by the state, which sold them something on the cheap," he sniffed.

He's wrong, of course. Plenty waxed wealthy without buying a thing from the government. Some received licenses from the state and others sold something to the state at exorbitant prices.

His derision came to mind a few days ago when we noticed an item in the Israeli press, that the Israel Electric Company plans to transfer about 32 acres of land in the coastal city of Ashdod to its sister government company, the Ports Authority. The land lies adjacent to the Eshkol power station. The Ports Authority wants to use it for its "jubilee port" project.

The whole story sent us six years back in time, to December 1995. That's when the IEC board of directors bought the land from a Tel Aviv-traded company named Rogosin for NIS 180 million in cash.

The man who led the move was IEC's Assets Committee director Dan Cohen. He persuaded the other board members that the deal was an essential. Otherwise, he threatened, the IEC would suffer tremendous damage because it desperately needed extra land reserves around its power station, for the sake of future expansion.

Well. Nonsense. Firstly, because the IEC paid through the nose. It could have bought the land for much less. Secondly, nobody could even guess when the company might need the land anyway.

More questions arise about the way the decision was pushed through. Relevant documents were sent by courier to the Assets Committee members' houses at the dead of night. The urgency was attributed to Rogosin selling a tract of the land by the station to somebody else a few months before, at a high price ¿ which proved the land's great value and allure to buyers.

Dawn broke over the deal

Come the dawn, and the dazed directors read in the Ha'aretz daily newspaper that said third-party buyer, that one that had bought the land from Rogosin, was a privately-held company owned by one Ezra Harel ¿ who owns Rogosin.

The deal, in short, gave off the whiff of a gambit to legitimize the excessive price Rogosin was demanding of the IEC.

Despite all, the IEC committee decided to approve the purchase, after Rogosin cut $12 million off the asking price. Thus in December 1995 Rogosin wound up with NIS 180 million, making Ezra Harel one of the bigger success stories on the Tel Aviv Stock Exchange.

Nor did Harel hang around twiddling his thumbs. He immediately convened Rogosin's board and pushed through a $1 million bonus for himself as a reward for obtaining the lucrative IEC deal.

Six years have passed. The land the IEC bought from Rogosin, which the IEC directors claim is so key to the company's future expansion, stands empty. Not only that, but it transpires that the IEC actually has too much land around that Eshkol power station. It has so much it can fork some over to the Ports Authority.

Israel's junkiest bond

Whence Rogosin in the last six years? What did it do with that NIS 180 million windfall? Did business baron Harel use the state's largesse to finance the establishment of a business empire?

Not exactly. Over the six years Harel's Rogosin lost about NIS 70 million in various weird and wonderful deals in hotels, telecommunications, real estate and port services in Israel and elsewhere.

In 1997 Rogosin managed to secure NIS 50 million through an offering of convertible notes, for which purpose it presented the "electric surge" in Ashdod as evidence that Harel was one savvy businessman. A man with a talent for buying low and selling high.

Yet as the years passed, the losses mounted. Rogosin's bonds collapsed as investors began to seriously fear that Harel would default.

Today the bonds are selling for half their principal value, reflecting a coupon of more than 50%. Rogosin's bonds have become the junkiest on the Tel Aviv Stock Exchange, bearing poor testimony indeed to the company's performance.

It turns out that Harel, who excelled at selling land to the state at an extraordinary price with the help of the IEC directors, is a lot weaker at business in which the state is not involved.