Postal Company on brink of collapse after NIS 200m. loss

With more losses expected, company may not be able to meet bond payments.

mailboxes_311 (photo credit: (Muhandes/Wikipedia Commons))
(photo credit: (Muhandes/Wikipedia Commons))
Sources inform Globes that Israel Postal Company Ltd. is set to announce a loss of NIS 80 million for 2011, after losing NIS 110m. in 2010.
The sources estimate that the Postal Company will lose at least NIS 60m. this year, and that it will not be able to repay its bonds in 2013. Six months after government-owned fresh-produce exporter Agrexco went into liquidation, the Postal Company could follow suit.
In addition, the Postal Company’s workers committee intends to declare a labor dispute, in view of these figures.
Postal Company Chairman Sasi Shilo has written to Finance Minister Yuval Steinitz warning that the company is in jeopardy after losing NIS 200m. in two years, and nearly a year of foot-dragging in negotiations by the Finance Ministry.
“The future of the company is shrouded in fog,” said Shilo. “The financial basis on which the company relies is undermined and disappearing, and each day brings the Postal Company closer to collapse and raises the price needed to stabilize it.
“Not helping the Postal Company is tantamount to desiccating the company to the point of destroying its ability to function,” he added.
The letter is also addressed to Budget Director Gal Hershkowitz and Accountant General Michal Abadi- Boiangiu, as well as Minister of Communications Moshe Kahlon.
In April 2012, the Postal Company is due to begin paying the principle on its NIS 400m. bond, which it issued in 2010. The payments total NIS 60m. a year, and in view of the company’s losses, there is a concern about its ability to meet the bond payments, beginning in 2013.
Midroog Ltd. gives the Postal Company’s bonds an Aa3 rating, after cutting the rating by one grade from A1, with a “Negative” outlook, in August 2011. Under the bond’s term, another downgrade will increase the interest rate by 25 basis points.
The Fiance Ministry opposes helping the Postal Company, and has conditioned any aid on floating 30% of the company, which it believes would put the company back on its feet.
The ministry told Globes in response: “The letter speaks for itself. The company desperately needs a solution to the crisis. The key to the company’s operations is held by the Ministry of Finance as the owner and regulator.”
The Postal Company does not object in principle to privatization, provided that the rights of its employees will not be harmed, and that it should be part of a general settlement.
Postal Company CEO Haim Almoznino was formerly the CEO of Delek Israel Fuel Corporation Ltd.
The company suffers from a rigid job structure and problematic income. It has 6,500 employees, and its salary cost accounts for 60% of expenditures. The Postal Company’s strong workers committee prevents any maneuvering on the rigid job structure.
Over a year ago, the Postal Company prepared a plan for the early retirement of 500 employees at an estimated cost of NIS 300m. Since the company did not have this amount, it asked the Finance Ministry for a special grant to finance the retirements. The ministry has so far not agreed to the request.
The Postal Company also has to deal with tough competition in the bulk-mail category, where it has lost substantial market share to private companies in recent years. The company’s rates are regulated, and the company says that they do not cover its costs.
The Postal Company says that the price of local stamps is too low, and it has asked for a 17% hike in the price of local mail. On December 20, it asked it asked the Finance Ministry for permission to close branches and reduce the level of service it is required to provide.
Shilo called the measures “desperately needed oxygen,” and added: “The Ministry of Finance’s position and willingness to make timely decisions is unclear.”