Prime Minister’s Office and Finance Ministry oppose $4.2 billion Zim sale
Government bodies warn that Zim Israel would remain dependent on Hapag-Lloyd despite being owned by Israeli fund FIMI.
The Prime Minister's Office and the Ministry of Finance oppose the proposed sale of Zim to German shipping company Hapag-Lloyd and Israeli private equity fund FIMI in its current structure.
According to an opinion issued by the Economics and Infrastructure Division of the Prime Minister's Office, "The central problem with the deal's structure is not the existence of business risk per se, but the gap between the corporate structure and the operational and strategic reality. Zim Israel would be an Israeli company owned by the FIMI fund, yet Israeli corporate control does not guarantee operational and strategic independence. A substantial portion of its operational and commercial capabilities would remain dependent on Hapag-Lloyd, a foreign company not subject to 'golden share' regulations. Following the deal, the State would retain a special share in an Israeli company, while a significant part of the conditions required for the company to operate over the long term and fulfill its national role would depend on an entity with which the State has no direct relationship."
The Ministry of Finance's position was conveyed Monday to the Government Companies Authority. According to the ministry, the risks associated with the transaction outweigh both its benefits and the risks of not approving it. However, the ministry said the deal could be reconsidered if a new proposal were put forward to mitigate the risks it identified, based on an updated assessment by the Shipping Authority of the State of Israel's needs.
The Finance Ministry outlined several concerns with the proposed structure. It said Zim Israel would not be a fully independent shipping company, but would instead rely on Hapag-Lloyd for infrastructure, containers, slot agreements and agencies. At the same time, Zim Israel would compete with Hapag-Lloyd in the U.S. market, creating what the ministry described as a potential conflict of interest and a limited incentive for the German company to ensure Zim Israel's long-term success. According to the ministry, a breach of the agreements by Hapag-Lloyd could therefore lead to the collapse of Zim Israel within a few years.
The ministry also argued that the structure of the deal, under which FIMI would acquire Zim Israel without an upfront payment or an initial equity investment, would weaken the alignment of interests between the owner and the company in the event of a crisis or collapse. FIMI's losses, according to the ministry, would be largely limited to reputational damage, while the State would remain exposed and could be required to provide funding to maintain operational continuity.
Another concern relates to the forecasts underpinning Zim Israel's business plan. The Finance Ministry said the projections assume that revenues and cargo volumes will increase by tens of percent over the coming decade covered by the agreement with Hapag-Lloyd, while failing to adequately account for the sector's high volatility and the possibility that current high prices are being driven by temporary geopolitical disruptions.
The ministry also raised concerns about Zim Israel's fleet. While the global shipping industry is moving toward newer vessels, the Israeli company would operate a relatively aging fleet, with ships between 11 and 16 years old, powered by traditional heavy fuel oil. Newer vessels increasingly use liquefied natural gas (LNG), according to the ministry. It argued that higher fuel costs and carbon taxes could make it difficult for Zim Israel to compete with larger global shipping companies.
The Finance Ministry also pointed to the stakes held by Qatar and Saudi Arabia in Hapag-Lloyd, arguing that during a political crisis, foreign influence over the German company could potentially be used to disrupt operations serving Israel or exert pressure on the country.
Another concern is the lack of an independent route to the Far East, which the ministry said "creates total dependence on foreign entities for vital trade." The buyers have since committed, under the revised proposal, to establishing a new route to the Far East.
The Finance Ministry's document runs to 33 pages and is the most comprehensive government opinion submitted on the transaction to date, surpassing even the report prepared by the Shipping Authority, on which other government ministries had previously relied.
The ministry also details the strategic importance of Zim to Israel. The company accounts for 20% to 25% of vessel calls at Israeli ports and ranks second in Israel's container shipping volume. Zim also plays a role in national security, including training the majority of Israel's naval officers and holding a partial stake in the maritime training institute in Acre.
Under the proposed transaction, Hapag-Lloyd would acquire Zim for $4.2 billion and split the business into two parts. Hapag-Lloyd would take control of Zim's global operations, including its chartered vessel fleet and international trade routes that do not call at Israeli ports, while an Israeli arm, Zim Israel, would be held by FIMI and retain routes serving Israel's coast. The latter would include routes to the United States, the Mediterranean and the Black Sea, as well as responsibility for complying with the State's "golden share" requirements. The original transaction structure envisaged FIMI taking ownership of a carved-out Israeli container business and assuming the obligations attached to the golden share.
Under the structure described by the ministry, Zim Israel would have access to Hapag-Lloyd's container fleet for 10 years, along with mechanisms intended to guarantee minimum profits during the initial years. FIMI would acquire Zim Israel without an upfront payment, with payment to Hapag-Lloyd deferred until FIMI realizes $200 million from its investment. Zim Israel would own 12 vessels and charter an additional four from Hapag-Lloyd.
The Finance Ministry's position carries significant weight as it is the last major ministry to issue an opinion on the transaction. Other government bodies have also opposed the deal, although the position of the Ministry of Economy has recently become more complicated after Economy Minister Nir Barkat indicated that he believes the transaction could benefit the State and instructed ministry officials to hold another meeting with Hapag-Lloyd and FIMI.
The Government Companies Authority will ultimately be required to make a decision on the transaction. If government bodies cannot reach agreement, the matter can be referred to the government for a final decision.
