Israel Corporation (TASE: ILCO) yesterday published an opinion by Yossi Bachar, who believes that the return on the $350 million investment that the company is due to inject into wholly-owned subsidiary Zim Integrated Shipping Services Ltd. as part of a debt settlement is likely to be 30-40%.
Bachar is a former director general of the Ministry of Finance. His report is 11 pages. Israel Corp. did not disclose Bachar's fee. The report applies various scenarios to calculate Zim's value in 2012. In the most pessimistic scenario, Zim will have a value of $363 million, which means that the capital injection will have a negative return of 7%. The most optimistic scenario ascribes to Zim a value of $2.3 billion, which means that the capital injection will have a positive return of over 70%.
Bachar wrote, "From a financial perspective, on the basis of the range of yields that the investment in Zim could achieve, this is a reasonable investment."
Israel Corp.'s notice to the TASE also implies that bondholders have torpedoed a possibility that its parent company, Ofer Holdings Group, might take over Zim as part of a debt settlement. "Globes" broke the story about this possibility.
Israel Corp. withdrew a plan to give Ofer Shipping Holdings Ltd., one of Zim's creditors, a $150 million capital note convertible into Zim shares. This capital note could have resulted in Ofer Shipping taking over Zim in 2016 in the wake of Israel Corp.'s $350 million capital injection into Zim. The cancellation of this item means that Zim's $150 million debt to Ofer Shipping is subordinate to the debts to Israel Corp.'s bondholders.
Israel Corp. CEO Nir Gilad said, "We believe that when the downturn in the shipping industry ends and the global economy recovers, Zim will again show strong profits and high cash flows, which will have a positive effect on Israel Corp.'s bondholders."
Gilad added, "However, it is clear that the investment in Zim is not without risk, and Israel Corp. therefore expects to obtain a fair return that will compensate it and its shareholders for the risk of the investment."
Israel Corp. hopes to use Bachar's report to persuade its shareholders to approve the capital injection into Zim next week. Last month, the shareholders rejected a $100 million capital injection into Zim.
Israel Corp. is working hard to obtain a favorable vote at next weeks shareholders meeting in order to execute Zim's debt settlement for rescheduling its $3.5 billion debt.
Israel Corp.'s share rose 1.4% in morning trading to NIS 2,524.
Published by Globes [online], Israel business news - www.globes-online.com - on October 8, 2009
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