Zim faces uncertain future as parent tightens the purse strings

Of all of the major deepsea liner shipping companies who continue to experience financial difficulties, one that stands out at the beginning of this year is the Israeli shipping company Zim Integrated Shipping Services, which has been singled out by Standard & Poors as putting a drag on its parent company’s credit rating.

Last Year Israel Corp, the country’s largest single company, announced that it was exploring the possibility of offering debentures – long-term loans which act much like bonds – to the public as part of a refinancing exercise, leading to the ratings agency reviewing its current financial and credit strength.

The analysis, released last week, made interesting reading. The key problem is that while Zim’s cash reserves are understood to be thinning, the likelihood that it will receive any further cash inflow from its parent is receding because that would, in S&P’s view, be likely to hit Israel Corp’s overall credit rating, and thus affect its ability to issue the debentures.

“There has been a further worsening in the credit quality of Zim, reflecting its short-term liquidity crisis due to the continued weakness in its operating performance, inter alia, as a result of highly unfavourable terms of trade in the shipping industry,” S&P Israel wrote.

So will Zim need further funds? It seemed to think at the end of November when it released its third quarter 2012 results, announcing an $18m net profit: “Zim recognises that there is still uncertainty and potential volatility in market conditions. Therefore, should the need arise; it will approach its financing partners, who have been supportive in the past, to achieve certain concessions or additional flexibility to help the company overcome any difficult period,” it said.

Which prompts the further question that if it does need further cash, how much will that be, and will it be under a threshold considered justifiable to its majority owner? And there are few outside its Haifa headquarters that could even hazard a guess at the answers.