If anyone needed further proof of the dire straits into which Israel Corporation (TASE: ILCO) subsidiary Zim Integrated Shipping Services Ltd. has sailed, the company's financial report for the second quarter of 2009, published today, provided it. Zim lost $186 million for the second quarter, more than quadruple its $42 loss for the corresponding quarter of 2008.
"I am not happy about the financial report, but we have a strong balance sheet, and Israel Corporation can absorb the shock and losses the likes of which are unparalleled in the Israeli economy," Israel Corp. president and CEO Nir Gilad told "Globes" in response.
Zim's financials came out while Israel Corp. is trying to put together a capital injection into the company. Yesterday, sources said that although Israel Corp.'s shareholders rejected the initial $100 million capital injection after a general shareholders' meeting earlier this week, the capital injection will nevertheless go ahead.
Gilad believes that even though institutional investors in the company rejected the initial capital injection, Israel Corp. will be able to inject $250 million into Zim later as part of the shipping company's recovery plan.
"There is no reason for the investment institutions to object," said Gilad. "We're going to undertake a multibillion dollar restructuring, on which we've been working for four months. When we submit the general settlement, I believe that we'll get the necessary votes to approve it."
"Globes": What happens if the proposal is voted down?
Gilad: "We believe that we can get the plan passed. If we don’t succeed, there are alternative solutions, such as a court-approved arrangement. But there is no doubt that we prefer first getting an agreement."
Why is it worthwhile for Israel Corp.'s shareholders to approve a $350 million capital injection into Zim? Will they ever see their money again?
"In the medium and long term the investment will generate a positive return, and when we submit the arrangement plan, we'll have to persuade them that this will happen. The shipping industry is built on cycles, and Zim will see the next upswing."
Gilad reiterated that Zim was not seeking to write off its debts, but only to reschedule them. He said that the capital injection plan was needed by Israel Corp. which did not want to abandon Zim. "The media will not give credit where it's due. If you look at the conduct of Israel Corp.'s controlling shareholders, you'll see that we don’t abandon businesses. In the case of Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE: TSEM), we were asked for years why we didn’t abandon the company, and now there are signs that our patience is paying off," he said.
Sources inform ''Globes'' that, during the crisis over the capital injection into Zim, Israel Corp. asked Prime Minister Benjamin Netanyahu to intervene. In a letter to Netanyahu, Gilad said that Zim "was liable to find itself, within days, in legal proceedings that could result in a stay of proceedings."
Since a temporary solution to Zim's financial distress has been found in the form a capital injected backed with guarantees, Israel Corp. apparently does not need government guarantees at this time.
The letter was also sent to Minister of Finance Yuval Steinitz, Minister of Transport Israel Katz, and Labor Party chairman and Minister of Defense Ehud Barak.
Published by Globes [online], Israel business news - www.globes-online.com - on August 27, 2009
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