Israel Corp.’s Zim Debt Revamp Seen Paving Way for Units Split

Israel Corp. (ILCO) will hand control of its loss-making marine transportation unit to creditors, paving the way for a split of its business.

ZIM Integrated Shipping Services Ltd. agreed on terms with the majority of its creditors, according to an e-mailed statement. As part of the agreement, Israel Corp. will inject $200 million and give creditors a 68 percent stake in the company, retaining the remainder of the shares. The shipping company reached an earlier debt agreement with bondholders in 2009.

Israel Corp., whose shares were the second-worst performers on the benchmark TA-25 Index last year, said in June it plans to create a new unit that will own all of its businesses apart from Israel Chemicals Ltd. and Oil Refineries Ltd. (ORL) as the holding company seeks to attract investors. The company’s former chairman Amir Elstein said in June that Zim’s restructuring should be resolved prior to the split.

“The company is lowering its exposure to this shipping activity,” Roni Biron, a Herzliya, Israel-based analyst at UBS AG, said by phone today. “Once approved the debt settlement will pave the way for the company’s spinoff plans.” Israel Corp.’s shares declined 1.1 percent to 1,897 shekels at 2:25 p.m. in Tel Aviv today.

Near Bottom

Standard & Poor’s Maalot lowered Zim’s rating to CC on Dec. 12, the third-lowest non-investment grade, citing the continued crisis in the shipping industry. Zim posted losses in 2011 and 2012, according to data compiled by Bloomberg.

“The shipping industry may begin to recover in 2014, as demand begins to strengthen and excess capacity is absorbed,” Lee Klaskow, a senior analyst with Bloomberg Industries in Skillman, New Jersey, wrote on Jan. 21. “Recovery will hinge on improved demand as the global economy continues to grow and carriers remain disciplined on fleet growth.”

Zim’s debt will be “significantly reduced” by the agreement, Chief Financial Officer Guy Eldar said today by phone. The company owes $1.82 billion to financial institutions and additional debt, the amount of which has not yet been disclosed, to other creditors, he said.

As part of the understanding, Zim will also hold an initial public offering of shares. The location of the listing will be decided by the new board, Eldar said.

Israel Corp.’s Oil Refineries unit reached an agreement with banks to refinance debt in December.

To contact the reporter on this story: Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net

To contact the editor responsible for this story: Samuel Potter at spotter33@bloomberg.net

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