ZIM registers primary stock offering on Nyse Index

There is no end in sight for the record boom in the trans-Pacific container freight market. Now there may be a new, more direct way for traders and investors to bet in this super-hot market. The Israeli line operator ZIM has just filed an initial public offering (IPO) and a listing on the New York Stock Exchange (NYSE).

This is the fourth attempt to go public with ZIM since the Ofer family took over the private carrier in 2004. As with the rest of the container industry, ZIM has had a tough road over the past decade. It was forced to carry out two major restructurings of its debt and its ship leasing contracts, one during the financial crisis and one in 2015.

But the fourth time could finally be the charm of the IPO. As American Shipper reported several days before ZIM’s filing, there hasn’t been a successful IPO in the US market since 2015, but ZIM seems most likely to break the losing streak. With today’s unprecedented foam rate in the trans-Pacific container trade, the timing couldn’t be better.

Matson only container leasing companies listed on U.S. stock market

Almost all of the listed container stocks in the United States are from companies that lease ships or crates to ocean liners. When ocean liners thrive on high freight rates, leasing companies’ inventories rise (due to reduced counterparty risk and higher charter renewal rates). Nonetheless, lessors are a step removed from the freight market.

On the other hand, liner companies are directly exposed to sea freight rates. But there is only one ocean liner in the U.S. stock market: Matson (NYSE: MATX).

Matson is heavily exposed to Asia-US rates. However, it is primarily a Jones Act operator with higher exposure to domestic markets, including Hawaii, dependent on tourism.

(Graphic: ZIM prospectus; Alphaliner data; TEU = 20 foot equivalent units)

Meanwhile, Maersk, the world’s largest liner operator, has U.S. certificates of deposit traded in the United States (OTC: AMKBY), but its common shares are traded in Denmark.

A NYSE listing by ZIM would give U.S. equity investors the most direct exposure possible to the Asia-U.S. Freight market. According to Alphaliner, ZIM is the tenth largest ocean liner in the world, but it is the most exposed to the transpacific. It had 52% of the capacity deployed in this trade against the industry average of just 19% in October.

ZIM’s exposure on Transpacific trade could influence US imports

It also means ZIM is more exposed to a collapse in US containerized imports than any other shipping line. On a positive note, there is no evidence that this will happen anytime soon.

On Saturday, 34 container ships were waiting at anchor off Los Angeles / Long Beach; congestion is more extreme than ever. Asia-West Coast (SONAR: FBXD.CNAW) rates were at an all-time high of $ 4,200 per day on Friday, according to the Freightos Baltic Daily Index.

ZIM already in talks with potential investors

The apparent contradiction of a boom in US imports amid a pandemic of outsized infections in the US is explained by data from the Bureau of Economic Analysis. Despite rising unemployment and poverty, overall personal income in the United States has increased due to the stimulus. Spending on services fell, resulting in increased savings as well as much higher spending on goods (ie imports).

With more stimulus coming in 2021 and vaccines likely to give consumers more confidence to squeeze bloated economies in 2020, imports and therefore ocean freight rates appear likely to continue to climb into at least the second quarter.

ZIM filed its publicly available IPO registration on December 30 (its first confidential filing dates back to September 30) Citigroup, Goldman Sachs and Barclays act as global coordinators, with Jefferies and Clarksons Platou Securities as associate bookkeepers.

While price and IPO targets have yet to be set, ZIM looks likely to strike while the iron is hot. American Shipper has been informed that discussions with potential investors are starting this week. Thus, it seems almost certain that the move from ZIM to Wall Street will occur during a period of extremely high transpacific rates.

ZIM applies a different policy than their other top 10 competitors

Most ocean carriers are either regional or global, providing vessels on all major routes. ZIM is in between. ZIM said it has a unique position as a global carrier, but is focusing on selected trades where it believes it can establish a competitive advantage.
Most carriers own about half of their fleet. Again, ZIM is different. It only owns one of its 70 ships, or 2% of its fleet.

(Graphic: ZIM prospectus; Alphaliner data; ranked in order of total capacity deployed)

ZIM assets are minimal due to their leasing policy

ZIM also stands out from other carriers in that it leases 89% of its containers and owns only 11%. Most carriers own almost half of their containers, with Maersk recently saying it will own even more.

ZIM maintains that its leasing strategy allows it to maintain a significant presence while limiting capital costs and maintaining flexibility.

On the one hand, it is a plus. While more leased assets are listed in the asset column of the balance sheet under new accounting rules, ZIM can still claim to be a lightweight asset class that today’s investors strongly prefer over heavy-intensive companies. ‘assets like traditional shipowners (one of the reasons there has been no IPO shipment in New York since 2015).

But on the other hand, the reason most liners own half of their fleet and half of their crates is that if you own assets for their entire lifespan, it is cheaper to own than to lease. . Plus, leasing all of your ships and boxes exposes you to rising charter rates, which is exactly what is happening today.

As of September 30, 78% of MIZ leases were for less than one year. As previously reported by American Shipper, vessel rental rates are skyrocketing. Thus, the strong increase in transpacific revenues could be offset by higher short-term charter costs.

Main concern for IPO investors are ZIM’s significant debts

As at September 30, the total outstanding debt stood at $ 1.7 billion, compared to $ 1.6 billion as at December 31, 2019 and $ 1.46 billion as at December 31, 2018. The increase over time of the first nine months of 2020 was mainly attributable to $ 101.4. million increase in rental debt. Current trends in charter markets mean that these responsibilities may increase.

ZIM’s current assets were $ 823.4 million and current liabilities were $ 975.9 million, resulting in a working capital deficit of $ 152.5 million. Total equity was negative $ 95 million.

In December, the Deed of Deed on ZIM Series 1 and 2 were amended to allow the company to pay up to 50% of its annual net income in dividends. The review follows $ 47 million in repurchases by ZIM of Series 1 and 2 Notes in recent months.

However, operational restrictions remain. In general, the debt constraints induced by the restructuring of the ZIM raise the following question: does it lease almost all of its assets by strategic decision or because it has no choice?

ZIM has acknowledged that the terms of our Series 1 and 2 tickets currently limit our ability to purchase or charter large vessels for extended periods of time.

The carrier is looking for ways to get around this limitation. It currently operates a fleet of vessels up to 12,000 twenty foot equivalents (TEUs). He said in his prospectus that he was considering entering into long-term lease agreements for 15,000 TEU vessels to be deployed in the trans-Pacific. These would replace short-term charters, which would increase our capacity to serve these routes.

Current ZIM shareholders could distress new investors

There are other red flags in the prospectus as well, beyond debt issues and exposure to skyrocketing charter rates. The first concerns sales of insider shares. As a result of its restructurings, the former holders of rental bonds and ZIM debt now own a significant share of the company.

According to the prospectus, the main shareholder is Kenon Holdings, controlled by Idan Ofer, with 32% of the pre-IPO shares. The second largest shareholder is Deutsche Bank, with 16.7%. The third largest holder is Danaos (NYSE: Dace) with 10.2%.

Companies like Danaos and Deutsche Bank could theoretically exit their positions once ZIM trades freely on NYSE and the lockdowns expire.

ZIM admitted that the perception in the public market that our shareholders might sell our common stock could lower the market price of our common stock and could affect our future ability to raise capital, particularly through an offer. equity securities.

Israeli governmental involvement limits international operations

ZIM also features another common red flag among shipping lines: related party transactions.

The company paid $ 22.4 million in 2019 for charters of Ofer-controlled vessels and $ 19.4 million in the first nine months of 2020. During these periods, it paid out respectively $ 41.4 million. of dollars and 22.5 million dollars for charters to the shareholder Danaos.

The company also poses risks associated with being Israeli. The State of Israel holds a special or privileged share in the company, which imposes various restrictions. The provisions of Israeli law prevent a potential sale of the company. Israel has the right to requisition ZIM ships. MIZ employees may be required to perform military services, hampering operations.

ZIM admitted that its status as an Israeli company may limit our ability to call at certain ports and therefore may limit our ability to enter into operational alliances or partnerships with certain shipping companies, which has historically adversely affected our operations and our ability to compete effectively in certain trades. He confirmed that some carriers are unwilling to cooperate with Israeli companies.

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