Everyone has lost at Zim Integrated Shipping Services Ltd., and it is hard to think of anyone connected with the sinking company who will not be hurt by the huge debt settlement that has been signed.
Israel Corporation (TASE: ILCO), controlled by Idan Ofer, which wholly owns Zim, has already injected $800 million into the company since the crisis in its business began in 2007, and is now injecting an additional $200 million as part of the settlement, which will see its stake in the company fall to 33%.
Zim's creditors - the banks, shipyards, and bondholders - will write off on no less than half of the debts owed them, taking a $1.5 billion loss. Israel Corp and the private shipping companies of Ofer and his partner Udi Angel, which have extensive ties Zim, will take a major blow, foregoing $300 million.
Nonetheless, there is one party that can view the settlement with satisfaction - the State of Israel, which exactly ten years ago sold half of Zim to Israel Corp. for NIS 504 million, a price reflecting a company value of over NIS 1 billion. The winner of the privatization was then-Government Companies Authority director general Eyal Gabay (the same Gabay who is a trustee of the IDB Holding Corp. Ltd. (TASE:IDBH) debt settlement). In retrospect, there is no question that this was a successful privatization, financially speaking, which prevented the need for the government to inject hundreds of millions of dollars into Zim in the past few years.
But back then, in January 2004, the privatization of Zim, especially the way the price was set, was lambasted for demonstrating the government's helplessness in the face of the tycoons' power and the sale of an asset that belonged to "everyone" for half price.
The criticism that the government had sold Zim for peanuts sharpened over the next two years, in which Zim reported large profits. The criticism sharpened even more when Israel Corp's shareholders approved Zim's purchase and leasing of 12 ships from the Ofer's private company for $820 million.
Subsequently, however, things have been far more stormy for Zim and its owners. Since 2007, the global shipping industry has been in trouble, which worsened as the global economic crisis deepened, due to a surplus of ships and drop in maritime transportation. The crisis hit Zim from both directions, because it had signed contracts to buy new ships during the boom time. When the industry sailed into crisis, the ships ordered were already under construction, but there was no need for them.
Zim went to arbitration, which is still ongoing. Zim lost $1.5 billion altogether in 2008-13, and four years ago, it was already unable to meet its liabilities.
As for the Israeli government, it can only welcome the decision to sell its stake in Zim, because it has no business in such a high-risk industry, especially one characterized by such volatile cycles. (This is also true for El Al Israel Airlines Ltd. (TASE: ELAL) and Oil Refineries Ltd. (TASE:ORL)). Even if the price obtained at the time for Zim was low, that is secondary compared with the business risk that the government removed from its shoulders and those of taxpayers.
Published by Globes [online], Israel business news - www.globes-online.com - on January 16, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2014