After half a year of contentious negotiations, Zim Integrated Shipping Services Ltd. completed the framework of a wide ranging debt arrangement with various lenders, which includes restructuring debts of over $3 billion. Parent company Israel Corp. (TASE: ILCO) also announced that it was postponing the shareholders' meeting scheduled for October 28 to November 1.
The deal, which Zim reported to the Tel Aviv Stock Exchange (TASE) this morning, includes deferring debt payments by up to 10 years.
In a supplementary report, Israel Corp. provided details of the understandings reached with the majority of those of Zim's creditors that will take part in the company's agreed recovery plan and that represent more than 95% of the debts and commitments of Zim that are included in the plan.
Under the debt arrangement, Israel Corp. will eventually put a massive sum, around $575 million, into Zim. $450 million will be a capital injection, of which it has already put $200 million, and Israel Corp. will send an additional $250 million to Zim. This is in addition to the $100 million safety net given to Zim, of which Israel Corp.'s share is $75 million, with the Ofer group providing the other $25 million. Israel Corp. is also expected to approve another $50 million in a reserve of standby aid, which can be invested in Zim if Israel Corp. deems it necessary.
The Ofer family, in addition to the $25 million for the safety net, will also contribute to the deal by postponing $150 million in lease payments to 2016. Other debts to Ofer family concerns, a total of $290 million due by 2013, will be paid as per the original schedule.
The Israeli and foreign banks, to which Zim owes over $1.5 billion, have agreed to rescheduling of debt repayments over periods of up to ten years, and also to grace periods of up to three years. Zim will be given new bank finance of over $500 million over a period of up to twelve years, to pay for new ships over the coming years.
Israel Corp chairman Nir Gilad told "Globes" today that he was "satisfied with the agreement which was reached", which was complicated due to the number of parties involved. "We can look back five months, and say with certainty that that the framework which was reached is appropriate."
The last link in formulating the deal was the company's bondholders. The debt to them is as of June 30th is $350 million. While that represents only about 5% of Zim's total debt, the sharp disagreements between bondholder representatives and the company held up reaching the entire deal, and led to pushing off the Israel Corp shareholder meeting which was to authorize the deal and a capital injection of $450 million into Zim.
The main points of the deal include delaying bond principal repayments by 4 years, so that the bonds will begin to be repaid in 2016, instead of 2012. If in 2016 the ratio of net consolidated debt to EBITDA is over 3, then the bond repayments will be pushed off further, until 2017. However, in any case bond repayments will end by 2020.
The reason for the possible extension of bond principal repayments is that while bondholders only agreed to a 4-year delay, other lenders, such as the banks, were willing to extend their terms for up to 10 years. In order to avoid a scenario where bondholders get paid earlier, leaving nothing for the banks, it was decided to add the debt to EBIDTA ratio clause.
Bondholders will receive guarantees worth $59 million. Between 2012 and 2016, the interest rate will rise by up to 1.2% per year, so that by 2016, the fourth "grace" year, the extra interest will reach 4.8%.
Bondholders will also have two ways to convert debt into equity. There will be an option to convert part of the debt into 12.5% of Zim shares, at a company value of $700 million, until 2020, if the option is exercised within 2 years of a Zim IPO. Bondholders can also convert about a third of the debt (about $115 million) into Zim shares, in the case of an offering or other Zim exit, in which case bondholders will get a 15% discount on the price at conversion.
Zim will be limited in paying dividends and management fees to Israel Corp.
Published by Globes [online], Israel business news - www.globes-online.com - on October 19, 2009
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