On October 14, an Israel Corp. shareholders’ meeting will be held to approve a $250 million injection into Zim. This cash injection is a vital condition for executing the debt arrangement.
Most of Zim’s creditors (banks, shipyards, and ship lessors) have agreed to a postponement of payments due to them in return for higher interest rates. Sources at Israel Corp. said that the fact that these creditors were prepared to reschedule debts rather than exercise liens indicated their faith in the company’s future. A sensitive issue in the debt arrangement is Zim’s debt to shipyards privately owned by the Ofer family, which controls Israel Corp., that have sold and leased ships to Zim. The debt to such companies amounts to $460 million. Under the arrangement, the companies privately held by the Ofer family will waive $150 million of debt in return for capital notes convertible to Zim shares. The notes will be converted to shares if Zim is floated or in 2016, whichever is the earlier.
In such a conversion, Israel Corp. is liable to find its holding substantially diluted. For example, if Zim is valued at $300 million, Israel Corp., which currently owns 98.5% of Zim, will be diluted down to a holding of less than 50%.
If Zim fails to recover by 2016 and is valued at under $150 million, the Ofer family’s private companies will gain full ownership.
Zim also owes NIS 1.3 billion to its bondholders, from offerings made in 2005-2006. It is negotiating over the arrangement with representatives of the bondholders. The representative body consists of insurance companies Harel and Migdal, and Amitim (the old pension funds).
Today, Israel Corp., controlled by the Ofer family, released the principles of the debt arrangement with the bondholders. The company says the arrangement will include deferral of principal repayments for several years, with repayment coming after Zim’s debt burden has been reduced. It is estimated that bonds due for repayment starting in 2012 will have payment deferred to 2016. Israel Corp. will enable bondholders to convert some of the debt to equity and stock options.
Some Zim bondholders criticized Israel Corp.’s announcement. “Under the arrangement, the bondholders will remain last in the queue, and will receive the debt only in another seven years, while the parties at interest will receive their money before that. The state ought to intervene,” one investment institution said. “The Ofer family has shown contempt for the bondholders. They published principles of a debt arrangement with the bondholders today, even though we have still not reached agreement.”
The representative of another institution said, “The Ofer brothers should take on some of the debt by injecting some of the cash they have received from Zim in the past, and this money should be for the benefit of the bondholders.”
In response to the criticism, Zim said, “Negotiations are taking place with the bondholders’ representatives in a businesslike and constructive atmosphere. Zim has not published any terms of the final agreement, which has yet to be reached. The only two principles that have been published is that Zim is not seeking forgiveness of debt, and that it is asking the bondholders to reschedule the debt.”
Published by Globes [online], Israel business news - www.globes-online.com - on September 10, 2009
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