Zim Integrated Shipping Services Ltd. has not yet been able to obtain the concessions or amendments to the financial covenants with its creditor banks, stated Zim owner Israel Corporation (TASE: ILCO) in a notice to the TASE today. Zim was supposed to reach a deal on financial covenants for 12 months through September 2012, by December 31, 2011. The company owes mostly foreign banks $2 billion.
The failure to reach an agreement means that Israel Corp. will have to record Zim's debt in the balance sheet of its financial report for the fourth quarter of 2011 as short-term debt, which can theoretically be called for immediate repayment, instead of long-term debt. Israel Corp's short-term debt totaled $4.2 billion at the end of September 2011, and its long-term debt was $6.8 billion.
Although the change in the debt's status is ostensibly technical, it could affect Israel Corp's financial ratios and even its financial covenants with lender banks. The company said that Zim has no financial covenants on either its short-term or long-term debts.
Zim is in the throes of a severe financial crisis, just two years after reaching a debt settlement. The company lost $245 million in January-September 2011, five times its loss of $42 million in the corresponding period of 2010. The third quarter loss nearly doubled to $66 million from $37 million for the corresponding quarter. Due to the losses, in November, Israel Corp injected $50 million into the company and its parent company Ofer Holdings Group injected an additional $50 million.
Zim has been trying to reach a new debt settlement with its creditors, mainly foreign banks. The company also owes Israeli bondholders $440 million, but the company has not yet asked them for a settlement. The bondholders, including Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL), Harel Insurance Investments and Financial Services Ltd. (TASE: HARL), Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), and Amitim (the eight nationalized old pension funds) have set up a representative, which has taken a hard line. The bondholders are due to soon sign a confidentiality agreement, after which they will receive Zim's new debt settlement plan. The company's business plan is due to conform to forecasts for the shipping industry.
Zim is a mid-sized shipping company, and its foundering condition means that a merger with or sale to another company cannot be ruled out.
Israel Corp's share price rose 0.1% today to NIS 2,380, giving a market cap of NIS 13.8 billion.
Published by Globes [online], Israel business news - www.globes-online.com - on January 1, 2012
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