Israel Corporation Losing Control of Zim

This isn't a haircut, it's a buzzcut: Bailout cuts shipper's NIS 3 billion debt by half.

The Israel Corporation, the holding company controlled by Idan Ofer, is set to lose control of Zim Integrated Shipping Services under the terms of a bailout agreement for the shipping company being negotiated with Zim’s creditors.

The agreement, which the two sides are discussing in talks taking place in Jerusalem, would reduce Zim’s 3 billion shekel ($860 million) debt by half, making it the largest debt reduction ever won by an Israeli company.

But Israel Corporation, now the sole owner of Zim, would hand over all its shares in the company to creditors. It would inject $200 million into Zim to buy back a 30% stake in the restructured company.

As part of the debt restructuring, $300 million owed to closely held companies belonging to Ofer and a former cousin by marriage, Udi Angel, will be wiped out.

Loss of control of Zim would be a blow to Ofer, whose family made their fortune in the shipping industry. The family’s involvement in the company dates back to 1969 when the shipping company Ofer Brothers Group merged the state-owned Zim. In 2004, Israel Corporation purchased the government’s 49% stake in Zim to giving it full control of the company, in what was criticized as a sweetheart deal.

But four years after Israel Corporation got full control of the company Zim began experiencing financial problems as the global financial crisis hit world trade hard. Four years ago, the shipping company had to be bailed out in a settlement that included a partial write-off of its debt and a rescheduling of the remainder. Israel Corporation injected $550 million into Zim as part of the accord.

The debt restructuring talks began after Zim was tagged with a “going concern” warning in its third-quarter 2013 financial statement. At the end of that quarter, Zim’s cash had fallen to $118 million and its operating profit was just $17 million, leaving it with a net loss of $44 million.

Israel Corporation shares rose 4.5% on the Tel Aviv Stock Exchange yesterday to 1,903 shekels, but the rise was probably due to a rally in the shares of Israel Chemicals, another Israel Corporation unit.

The three largest groups of creditors are comprised of banks, shipyards and ship-leasing companies and bondholders. The $3 billion in debt includes $775 million in unsecured debt 

Israel Corporation’s $200 million injection of funds has to be approved by shareholders. Neither Ofer, who holds a 52% stake in the company, nor a group of institutional investors who hold both shares in the company as well as Zim bonds, will be allowed to vote.

But without the infusion of new capital injection, along with the debt restructuring, ZIm would not be able to continue to operate.

The share issue gives bondholders a 20% stake in the restructured Zim in addition to an allocation of new bonds they will receive due in 2023.

Zim is expected to issue two new series of bonds for the restructured debt. One bond series will be issued to secured creditors like banks and ship-leasing companies. The interest payments for the bonds will paid at the time of redemption unless the company generates surplus cash flow, in which case interest payments will be made before redemption.

A second bond series for unsecured creditors will not make regular interest payments. The interest on this debt will likewise be added to the principal and paid at redemption.

Bloomberg