Debt-laden Zim Tagged With Going-concern Warning

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Zim Integrated Shipping was forced to append a going concern qualification to its third-quarter financial statement, released late last week, as it grapples with debt of $2.4 billion.

The warning signals that the company’s auditors are not sure the company can survive. Zim however expressed confidence that it would reach an agreement with creditors. It began talks 10 days ago.

“There has been no deterioration in the company’s performance. Zim estimates that once the arrangement is completed and approved, there will be a significant improvement in the capital structure,” the company said in a statement.

“Zim is hoping to complete the process of reaching an agreement on the principles of the arrangement in the near future,” said the company, which is the cargo-shipping unit of The Israel Corporation.

Problems besetting Israel Corp

The going concern warning for Zim is only one of the problems besetting Israel Corporation, the giant conglomerate controlled by Idan Ofer, and pointed out in its third-quarter report, also issued late last week.

The conglomerate posted a net loss of $84 million for July-September, compared with netting $159 million a year earlier.

Israel Chemicals, one of Israel Corporation’s biggest holdings, reported a steep drop in profit to $78 million for the quarter, from $395 million in the corresponding three months of 2012, including one-time items.

At Oil Refineries, Israel’s largest refinery, the loss rose to $70 million, from $21 million in the third quarter of 2012, while losses at chip maker TowerJazz widened to $31 million, from $23 million. Qoros, a joint venture of Israel Corp. and China’s Chery Automobile Company, posted a quarterly loss of $48 million, up from $21 million a year earlier. 

Oil Refineries’ debt woes delayed the publication of the Israel Corporation’s quarterly results until just before the November 30 deadline. Oil Refineries had delayed publishing its statements until reaching an accord with its bank creditors to avoid a going concern warning as well. In the event, it succeeded late on Thursday.

Israel Corporation shares closed 1.6% higher, at NIS 1,840, in Tel Aviv Stock Exchange trading on Sunday.

Closely held Zim, the world’s 17th-largest shipping company with a 2% market share, lost $44 million in the third quarter, compared to a $16 million profit a year earlier.

However, many of its financial parameters improved: It recorded an operational profit of $17 million, turning around from a loss of $29 million in the second quarter while earnings before interest, taxes, depreciation and amortization, or Ebitda, grew to $56 million from $12 million. It carried about 2% more cargo than in the second quarter, although revenues fell 15% to $900 million due to lower freight rates.

“In spite of the improvement, the shipping market conditions are still challenging due [sic] a downwards pressure on the freight rates and the continued uncertainty in the global economy,” Zim warned.

Zim said the going concern warning required it to reclassify some $1.5 billion of long-term debt to short-term debt.

Zim vessel off Ashdod port. Credit: Limor Edri