Zim heading for new debt settlement

The shipping company risks violating its covenants with the banks.

The stormy weather that the global shipping has faced in the past few years has been due to several factors: higher oil prices, the global slowdown, and the huge supply of ships. The slump is liable to claim an Israeli victim: Zim Integrated Shipping Services Ltd., the wholly owned subsidiary of Israel Corporation (TASE: ILCO), controlled by Idan Ofer's Ofer Holdings Group. It cannot be ruled out that Zim will soon need a new debt settlement, after its debt settlement in 2009 and more than $1 billion in losses since 2008.

Although Zim posted a $17 million profit for the third quarter of 2012, its first profit in two years, it is premature to celebrate. The third quarter is a seasonally strong quarter, because of preparations for the Christmas shopping season. But shipping revenue was 4% less than in the third quarter of 2011, due to the global economic climate.

Zim was able to swing to a profit by cutting its operating costs and a 10% rise in shipping rates. But this rise was due to discipline by shipping companies, not because of a recovery in demand. On the supply side, the large number of new ships entering service will cause a large oversupply of shipping. Although shipping rates are still much higher than in 2011, they have been falling for months, and shipping companies fear from launching a price war that will drag the industry into a maelstrom.

Zim's 2009 debt settlement included rescheduling its debts and a $575 million cash injection from Israel Corp, which was subsequently increased. 2013 is expected to be an especially challenging year, and Zim's covenants with the lender banks require it keep a minimum liquidity of $100 million.

Zim had $182 million at the end of September, but it is due to pay $230 million in down payments over the coming year to the shipyards that are building ships it ordered. The first payment, due this month, is $137 million. If Zim makes the payment, it will be in breach of its covenants with the banks. Zim has stated in its latest financial reports that it can postpone payments to the shipyards from 2013 to later dates.

Zim also has to make $300 million in interest and principal payments to the banks over the next 12 months.

Psagot Investment House Ltd. gives Zim a value of zero.

Published by Globes [online], Israel business news - www.globes-online.com - on January 1, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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