Israel Corp. Shareholders Agree to Massive Rescheduling Agreement for Zim Shipping

Plan would write down $1.4 billion in Zim Shipping’s debt, but is subject to changes in the terms of the government’s golden share.

Bloomberg

Israel Corporation shareholders on Friday approved the largest debt rescheduling agreement in Israel’s history for the holding company’s Zim Integrated Shipping Services subsidiary.

Shareholders backed a plan that calls for creditors to write off $1.4 billion of Zim’s $3.4 billion debt in return for a 68% stake in the shipping company. The Israel Corporation will inject $200 million of cash into the shipping company as well as provide a $50 million guarantee, which will entitle it to retain a 32% stake. The Israel Corp. currently owns almost all of Zim.

The agreement also includes a provision to convert $235 million of Zim bonds, 55% of the debt it owes bondholders, into stock. Blackstone has projected that bondholders will end up getting 58% of their money back.

If a dispute with the Israeli government over Zim shares can be resolved, the debt arrangement will dramatically improve Zim’s financial condition. Blackstone, the company that has been advising Zim bondholders, has estimated that it would provide cumulative savings of $527 million between 2014 and 2018 by reducing leasing fees to third parties by 46% and another $1,000 per day in leasing charges to companies controlled by Ofer and Angel.

The bailout has already won the backing of Zim’s 140 bank and bondholder creditors. But the plan still requires Israel Corporation, which is controlled by Idan Ofer, to resolve a dispute with the government over the state’s so-called golden share in Zim.

The government retained the share, which entitles it to preferential voting rights, including veto power over certain decisions, after Zim was privatized. As Israel’s biggest shipping company, Zim is regarded as a national security asset.

Israel Corporation has petitioned the Haifa District Court to amend one of the rights accruing to the golden share, namely one that gives the government a veto over the sale or transfer of at least 24% of Zim’s shares as part of the sale or merger of the company. The provision is designed to prevent hostile parties taking over the company.

Israel Corporation is also asking the court to remove a requirement that Zim maintain at least 11 ships to serve Israel’s needs in times of national emergency. It wants the requirement to be amended to a smaller number of vessels on specific shipping routes available at the government’s disposal for a 10-year period.

The government is opposed any change in the golden share and has challenged the authority of the court to consider such changes. Calling on the parties to negotiate a compromise by Sunday, Haifa Magistrate’s Court Judge Adi Zarnakin said he would set the terms if the sides failed to reach an agreement.

Israel Corporation’s minority shareholders backed the debt bailout Friday, even though the consulting firm Entropy counseled shareholders to oppose it, arguing that the Zim shares Israel Corporation would receive are worth only a third of the cash the holding company was putting into Zim.

But Zim CEO Rafi Danieli called the Friday vote a vote of confidence by the Israel Corporation’s institutional investors in Zim and its business strategy.