The Israel Corporation is ready to hand over its interest in Zim Integrated Shipping Services to the company’s creditors and walk away. A debt restructuring plan to this effect for the financially beleaguered shipping company was presented to banks and its bondholders at the end of April, but was not made public.
Zim has $3.05 billion in debts to banks, bondholders, and to owners of ships it has leased. Of this, $390 million is secured and will be paid in full with a 10 month delay at annual interest of Libor+2.5%. Another $1.8 billion of the debt, mainly to banks, is partially secured. The $775 million in unsecured debt includes $376 million owed to ship owners.
Israel Corporation, controlled by Idan Ofer, is offering to convert the entire unsecured portion of the debt and $613 million of its partially-secured obligations into Zim shares, leaving itself without any stake in the company. Israel Corporation already reported in its 2012 financial statements having committed all its shares in Zim to securing its liabilities, thereby signaling its unwillingness or inability to sink more funding into the floundering company.
Zim plans to postpone repayment of the partially secured debt that won’t converted into stock by issuing two new bond series: one maturing in eight years carrying interest of Libor+2.5%, and the other redeemable in nine years with a fixed 3% interest rate.
The banks and bondholder representatives haven’t officially replied to the offer, but it is believed an additional injection of hundreds of millions of dollars will be sought considering that Zim’s plight is partly due to the purchase or leasing of ships from companies privately owned by Ofer through interested party transactions. Zim owes these companies a total of $700 million and it is likely that the banks and bondholders will insist that this debt be made subordinate to their own as well as to the two series of bonds to be issued.
Israel Corporation, however, might not be able to inject any further funds into Zim as a decision to do so would require a majority of shareholders without any vested interest, and with the company already having poured over $1 billion into Zim since mid-2008 it is doubtful a majority would approve.
One more fly in the ointment is that the conversion of debt into shares would also require approval by the Government Corporation Authority since the state has owned a “golden share” in Zim since its privatization in February 2004 giving it a veto over the transfer of an interest of 24% or more in the company. The veto is meant to protect the state’s vital interests in the company.