Kenon set to dispose of more ZIM shares

The share price of Israeli shipping line ZIM Integrated Shipping Services (NYSE: ZIM) has risen 260% in the past year, allowing holding company Kenon Holdings (TASE: KEN, NYSE: KEN) to continue reducing its stake in the company. At the end of last week, Kenon, ZIM’s largest shareholder, announced its intention to sell or make deals with the remainder of its stake. This means the possibility of selling shares worth about $500 million. Kennon owns 16.5% of ZIM, a stake currently worth $472 million. In response to the announcement, Kenon’s share price jumped 5% at this morning’s open on the Tel Aviv Stock Exchange.

Six months ago, Kennon sold ZIM shares for $111 million, at the same time signing an option to sell additional shares in ZIM (4.2% of the company). This option has now been canceled (“the collar”), and in its place a limit call deal has been signed whereby the shares will be sold to the same bank with which the option deal was signed. “The capped call transaction will allow Kenon to retain exposure to potential upside in ZIM shares above the purchase price, up to the cap, and will be settled in cash. As a result of the termination of the collar, 5 million shares were subject to the collar, which were pledged to the bank with which it entered Kenon in the collar, will be sold to the bank and Kenon will receive cash proceeds from ZIM shares, less the cost of the cash-settled capped call transaction, which amounts to approximately $93 million. dollar.

It was also reported that Kennon will undertake further dispositions of ZIM shares through JP Morgan and Citigroup.

As previously mentioned, Kenon Holdings remains ZIM’s largest shareholder, but at the time of ZIM’s flotation on the New York Stock Exchange in 2021, it owned 30% of the company, nearly double its current stake.

Volatile market

ZIM was floated a few years after two major debt settlements. In 2009, it rescheduled debt worth $7 billion, and in 2014 it “pruned” by 50% of debt worth NIS 34 billion. The float was at a pre-cash valuation of $1.5 billion, and after a period in which the share price declined, it rose again thanks to higher shipping rates. ZIM’s market capitalization will reach a peak of around $10 billion in 2022.

As shipping rates fall again, ZIM’s share price also falls, but has risen again in the past year, partly due to the threat facing shipping in the Red Sea from the Houthi rebels in Yemen, which means longer shipping routes and thus a lower supply of available ships. Which allows ZIM to raise prices again. ZIM’s current market cap is $2.86 billion.

According to WSJ data, most analysts have a neutral or negative rating for ZIM, and the average price target is lower than the current market price. When asked at the time of the release of the latest financial statements what analysts don’t understand about ZIM, CEO Eli Glickman responded, “I’m careful about what I say about analysts, but they are generally experts at explaining what happened in ZIM’s past, and it’s difficult for them to predict the future. They work according to formulas, they are careful. The shipping market is very volatile, and they do not want to disappoint investors, so they are very careful.”

Last week, ZIM released strong financials, raising its 2024 guidance for the third time this year. For the third quarter, the company reported revenue of $2.77 billion, representing growth of 117%, and posted net earnings of more than $1.1 billion, compared to a loss in the corresponding quarter. ZIM expects adjusted EBITDA for the year to be between $3.3 billion and $3.6 billion.

The Company declared a dividend of US$440 million (US$3.65 per share), which includes an ordinary dividend in accordance with the Company’s dividend policy, and a special dividend of US$100 million.

According to the latest SEC filings, besides Kenen, another interested party in ZIM, Jane Street, registered in Delaware, owns 5.3% of the company. However, most investors in ZIM are individual investors. Commenting on this last week, Glickman said: “Most investors in ZIM are short-term. This has advantages and disadvantages. The advantage is that the stock is very liquid; there are days when trading volume in ZIM is higher than in all other stocks on the Tel Aviv Stock Exchange combined.” This indicates how much interest there is in the stock. The disadvantage is that the stock price can also fall, and this is very difficult to predict.

Kenon itself was spun off from Israel Corporation (TASE:ILCO) in 2015 as an independent public company. The Israeli company has maintained its long-term holdings in ICL and Bazan, while Kenon has received investments in Tower Semiconductor (TASE: TSEM; Nasdaq: TSEM), and Chinese automaker Qoros (which was founded as a joint venture between Chery and Israel Corporation in 2007 and has since It then closed), its energy production business, and the stake in ZIM.

In the years following the split, Kenon distributed its shares in Tower Semiconductor as dividends, sold part of its business abroad, and floated OPC Energy, a power producer, on the Tel Aviv Stock Exchange. OPC became Kenon’s core business. Its current market value is 7.2 billion shekels, of which Kenon owns 54.5%. Kenon’s current market capitalization is NIS 5.5 billion, following a 37% rise in its share price so far this year. Idan Ofer’s stake in Kenon (through Ansonia Holdings) is valued at NIS 3.36 billion.

Published by Globes, Israel Business News – en.globes.co.il – on November 24, 2024.

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