"An understanding has been reached in the pending debt settlement for Zim Integrated Shipping Services Ltd., under which employees will receive options for up to 5% of the company's shares," states the laconic sentence after 60 or so pages of legalese of the debt settlement being drawn up between Zim, its shareholders, and creditors, whom are owed $3.5 billion. In other words, after the settlement, Zim should get back on the high seas and its executives will be compensated accordingly.
Why has Zim decided not to announce its intention to distribute options to executives in the context of its very detailed reports about the debt settlement? Why did it mention the intention only in a presentation by Deloitte Brightman Almagor Zohar that was appended to Zim's report to its creditors and shareholders?
On June 23, Zim's shareholders will hold a general meeting to approve the debt settlement with its creditors. The company announced the settlement on January 23. Israel Corporation (TASE: ILCO), which owns 99.7% of Zim, will ask to liquidate the other shareholders, some of whom have held shares for decades. Zim will also ask the state to forego its golden share in the company, which is the way the government guarantees that Zim will remain an Israeli shipping company. The golden share is priced at 5-10% of Zim's value, but the company's executives have no intention of paying the government for foregoing it, and are merely offering a very partial settlement on the basis of a contractual commitment to make six ships available to the Ministry of Defense under certain conditions. This commitment will be backed by a $10 million guarantee by the parent company.
Zim argues that if the state does not forego its golden share, the company will go bankrupt and the share will be worthless. The state, which was not a party in Zim's failed business decisions that resulted in two debt settlements and debts of over $4 billion (before the settlements) will be forced to forego its share because it has no alternative.
In the presentation, Deloitte Brightman Almagor Zohar reveals that, after the debt settlement, Zim will be a completely different company. The accounting firm's analysis of Zim business plan found that it will become a very profitable company in 2014. After reporting an operating loss of $191 million in 2013, it will report an operating profit of $112 million in 2014, $158 million in 2015, and $183 million in 2017. The government will receive nothing from the expected bonanza following the debt settlement, of course, but Zim's executives will reap 5%.
Zim said in response, "It is normal to offer incentives to mid-level and senior management in long-term plans in order to keep business continuity. Moreover, the incentive for an increase in value from which all shareholders will benefit is an accepted model at many companies. The management is strongly appreciated by all the creditors, both for the operating improvement in the company's business results, and for its handling of the debt settlement. The plan should be approved by the creditors, which guarantees that it will be at the accepted terms in such cases."
As is usual in debt settlements, its includes an agreement for the reciprocal cancelling of claims between Israel Corp., Zim, Zim's employees, and its creditors. However, this cancellation is not absolute: two companies will be excluded XT Group Ltd. and Eastern Pacidic Shipping Ltd., both owned by Idan Ofer, the controlling shareholder in Israel Corp.
Zim said in response, "As is usual in such agreements, the controlling shareholder will be released from future claims against it, especially when the controlling shareholder is injecting fresh capital and waits current debts. In the present case, Israel Corp. is injecting fresh capital, the related parties are waiving lease fees and all compensation received by the other parties."
Published by Globes [online], Israel business news - www.globes-online.com - on June 8, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2014