Rotem: "According to the financial data published by Israel Corporation and Zim, it is hard to describe the company's operational situation as being 'on the edge of a cliff.' The company is currently breaking even on its operations. It has had a positive operating profit (EBITDA) for two years. Zim's problem is its debt burden, which was created by the irregular measures of its former managers and owners, and by the burden of the leasing fees that it pays to its controlling shareholders. According to figures published by Israel Corporation, the company can break even on its operations, while simultaneously dealing with the debt arrangement."
Zim says that the leasing of the ships from parties at interest has been blown all out of proportion that less than 10 of the 90 ships operated by Zim are involved.
"I know of 15 ships that the company either leases or purchased in cooperation with related parties. The leasing fees that Zim pays to related parties currently amount to over $200 million a year, and it was much higher in previous years."
It is important to note that Zim is no longer demanding the elimination of the golden share; it is focusing on a single material demand: repeal of the share transferability restriction, a regulation requiring Zim to obtain the state's consent to sell control of the company (or a stake of over 24% of its shares) to a third party. In its public statements, Zim confirms that Israel Corporation, whose shareholders meeting is scheduled to decide in the coming days whether to support the debt arrangement, is behind this demand. In addition, Zim is also offering to convert its obligation to operate an "iron fleet" of 11 Israeli ships into a contractual obligation to the Ministry of Defense, but does not define this demand as "material," unlike the elimination of the transfer restrictions. "Israel Corporation's demand was designed to enable foreigners to take over the company," says Rotem. "Let's think for a minute what will happen the minute the company is sold to foreigners? You don't have to be PhD to imagine that; it's enough to live in the Middle East."
Can you spell it out?
"If control is transferred to foreign hands, they will be unwilling to import goods to Israel in an emergency. I'm talking, for example, about a scenario in which Ashdod or Haifa Port are under bombardment, the government orders Zim to transport essential equipment, food, and other economic needs to the country's ports, and the foreign personnel stops in Cyprus and refuses to come here. In a scenario like this, the state will be unable to force Zim to transport equipment and food. All it can do is foreclose the $10 million in guarantees that the Israel Corporation gave it. Anyone who thinks this scenario is unreasonable apparently does not live in the Middle East."
And what if Israel Corporation does not join the arrangement?
"If the two lords, Gilad and Ofer, decide not to carry out the debt arrangement, the company can be handed over to a receiver or a special manager."
Israel Corporation sources assert that the demand that the state waive the shares transferability restriction is due to the need to ensure that the shares purchased in the new Zim will not be disabled or damaged as a result of a restriction that bans the sale of control in the company without the state's consent in a shipping market based on mergers. As an example of the importance of this demand, the company cites the attempt to sell Israel Chemicals shares to Potash - ruled out by the state, which possessed a similar veto in Israel Chemicals, and the subsequent fall in the Israel Chemicals share.
In response to Rotem's claim that only Israel Corporation is demanding that the transferability restriction be waived, the Israel Corporation noted that Zim's other creditors are not being asked to invest capital in buying the company's shares; they are receiving shares in exchange for foregoing debt, while Israel Corporation is being asked to purchase its shares in the new Zim at full price, in addition to foregoing its debt.
Published by Globes [online], Israel business news - www.globes-online.com - on June 26, 2014