Published On: Wed, May 28th, 2014

The Ofers and Zim’s Other Owners Accused of Skimming $1 Billion From The Shipping Company

Above standard fees charged for ship leasing and other illicit practices have been charged against Zim’s owners in a new investigative report.

Only a week after the Israeli government approved a new restructuring plan for Zim Shipping, it has now been reported that the company agreed to long-term ship leases at above market prices to companies controlled by its owners. This has amounted to an estimated $1 billion windfall for the shipping company’s proprietors.

There is nothing new in the business world concerning a part owner in one company arranging for it to overpay for the services of another company which he fully owns. For example, there have been accusations in America in recent years by minority owners of professional sports teams who claimed that the principle owners allowed companies which they owned out right to underpay the teams for things such as broadcasting rights or overcharged the team for external services.

Apparently, back in February 2008, Zim renewed its lease on an old and decaying ship, the Zim Marseilles. It did so for $16, 900 a day, up from $9, 750 for a 70% increase in cost to the shipping company, when one would expect the cost of a lease to go down as a ship ages.

It took only a year before the ship itself had to be junked at which time Zim was required to pay the ship’s owners $8.5 million just to terminate the lease.

Not surprisingly, the Marseilles was owned by XT Group Ltd., which is in turn owned by none other than Idan Ofer. And this was just one of many such instances.

According to a report by Dr. Zeev Rotem, who was commissioned by the Israel Maritime Officers Union, Zim has paid out more than $1 billion in leasing fess in recent years to companies belonging to its controlling owners. The report was presented to the Knesset Finance Committee Chairman MK Nissan Slomiansky, Israel’s Minister of Finance Yair Lapid, its Minister of Defense Moshe Ya’alon, and Minister of Transportion Yisrael Katz.

Idan Ofer

Rotem said in his report, “The large number of long-term leases with the parties at interest and the differences in prices of leases that Zim committed to, compared with market prices raise many question markets over the sharing of risk between the company and the leasing companies. These long-term agreements at relatively high prices, without any fair exit clauses to hedge the risk are one of the main reasons for the company’s decline.”

Zim was a profitable company when it was first privatized in 2004, but was almost bankrupt by 2006. Today Zim’s owners deny that its troubles are due to mismanagement or their scamming of the company, but because of a general downturn in the global shipping industry.

But Rotem’s report refutes their stance, pointing out that Zim has run up more than $2 billion in costs for new ships, far beyond the expenses of other global shipping companies. Rotem asserts that these purchases, along with bad leasing deals such as with the Marseilles, are the reason for Zim’s recent financial woes. He also pointed out that Zim is the only major shipping company to post a loss for five out of the last six years.

On this point Rotem said, “The fact that Zim posted extraordinarily heavy losses compared with other shipping companies unequivocally shows that the argument that the company’s financial decline is solely due to the ‘condition in global shipping’ is groundless. It is obvious to everyone that the conduct of its management and owners has a major contribution to the company’s condition and the fact that it presents the worst performance in the shipping industry in the past decade.”

As part of Zim’s restructuring deal with the Israeli government, it has received a pledge by Israel to end its “golden share” in the company, which Israel has maintained since it was privatized. Such shares are standard in industries which are vital to a nation’s national security. In the case of a small country like Israel, shipping would be vital in a time of war.

Rotem sharply criticized Zim for seeking not only to end the golden share, but to not even compensate the Israeli tax payers for it. Zim does not want to pay Israel any fees for its renunciation of the golden share.

The tenth largest shipping company in the world, Zim Integrated Shipping Services Ltd. Is Israel’s largest cargo shipping company. Headquartered in Haifa, it was formerly known as Zim Israel Navigation Company. Its US headquarters are located in Norfolk, Virginity.

ZIM was founded in 1945 by the Jewish Agency – Israel’s per-independence de facto government – and its national labor federation, the Histadrut. Its first ships were used in the clandestine immigration of Jews to Israel in the years between World War II and Israel’s Independence in 1948.

Throughout the 1950s and 1960, Zim expanded its fleet of cargo vessels and made a brief foray into passenger shipping which failed.

The company was a government owned concern until it was privatized in 2004. That year Zim was bought by Sammy and Yuli Ofer’s Israel Corporation for only about $100 million (Now owned by Sammy’s son, Idan Ofer). The low price was widely criticized in Israel.

Several plans over the years to take the company public were aborted due to financial problems.

 

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