Israel Corp., controlled by Israeli billionaire Idan Ofer, rose to the highest in more than 18 months after its shipping unit reached an agreement to cancel half of a nine-vessel order.
Shares of the holding company, advanced 2.9 percent to 2,830 shekels, the highest since September 2011 at the close in Israel. The shares of the Tel Aviv-based company with a controlling interest in Israel Chemicals Ltd. has gained 16 percent this year. The benchmark TA-25 Index increased for a second day adding 0.4 percent.
Israel Corp. said Zim Integrated Shipping Services Ltd. reached an agreement with a shipyard to cancel contracts for the purchase of five out of nine vessels ordered. The agreement comes as a pickup in the shipping industry is unlikely until the second half of this year due to excess capacity and weak demand, according to data compiled by Bloomberg.
“The fear was that the company will have to continue to finance the building of ships they can’t afford,” said Gilad Alper, a senior analyst at Excellence Nessuah Investment House Ltd. in Ramat Gan, Israel. “The agreement shows that the company is trying to manage the problem and control the outflow of cash.”
The agreement postpones or cancels payments due in 2013, amounting to $235 million and releases the company from off-balance sheet obligations amounting to $1.4 billion, Zim said on its website. Delivery of the remainder of the vessels will be postponed to 2016 from 2015.
Zim, which will recognize a reduction in value of $133 million in its fourth-quarter financial report, will get a $30 million refund from the down payment on the ships, and will be charged with a cancellation fee of $55 million. The company said last month it started a work plan for 2013-2017 in cooperation with banks and has appointed a financial consultant to study how to meet commitments.
A drop in shipping rates prompted by an economic slump and capacity glut might depress trading into 2013 before rebounding in the second half, Zim Chief Executive Officer Rafi Danieli said Nov. 29. The company posted third-quarter net income of $16 million versus a $66 million year-earlier loss as it cut costs.
The marine shipping industry is highly cyclical and susceptible to periods of boom and bust. Cycles are driven by overbuilding during times of growth to take advantage of strong markets, according to data compiled by Bloomberg. Shipping companies do not have enough lead time to alter orders when economic activity begins to slow, which has a significant effect on freight rates, Bloomberg Industries analyst Lee Klaskow said in a report last month.