Is this the time to invest in the maritime business? Yildirim Group thinks so.
That’s especially true for terminal operations, where the Turkey-based private equity group is profitable. Its outlook for container shipping, however, isn’t nearly as clear, largely because it has yet to turn a profit on its growing investment in CMA CGM, the world’s third-largest container line.
“We make the money in other fields and invest in maritime. We are hoping one day we will make money in shipping,” said Robert Yuksel Yildirim, president of Yildirim Group, who drew a laugh from the audience at the Marine Money Week conference in New York last month.
Even so, the family owned private equity group, which has profitable investments in mining, metals, fertilizers and energy, is plunging ahead with investments in ports and shipping because it sees strong opportunities.
The group first ventured into container shipping in November 2010, when it invested $500 million in CMA CGM in return for a 20 percent stake in the debt-ridden French carrier. “We knew the company inside out from our ports in Turkey and knew it had very strong management, so when their negotiations with Qatari Holdings failed, we started intensive negotiations for one month before we shook hands,” Yildirim said.
The risk of investing in the French line was low, he said, “because I didn’t think the French government would let it go down, and I didn’t think the 72 creditor banks would lose their $5 billion in loans to CMA CGM.”
The Saade family, which owns CMA CGM, chose Yildirim because Qatar’s sovereign wealth fund and other potential investors wanted to buy more than a 30 percent stake and wanted management control of the company. “We speak the same kind of language,” Yildirim said. The Turkish group has been able to help CMA CGM because “we are sitting on a gold mine of industrial information,” which it can use to help the carrier forecast container volumes, he said.
The group plans to exercise its option to acquire another 10 percent of the French carrier, raising its stake to 30 percent. “We wanted to do this last December, but CMA CGM delayed this because they wanted to get the company healthier by getting the French government’s (sovereign investment fund) FSI inside as an investor to strengthen the company,” Yildirim told The Journal of Commerce.
CMA CGM will decide whether to take on the new investment this summer, he said. If it does, Yildirim will arrange to inject another $250 million, most likely by October. “It has high upside potential,” Yildirim said.
Despite the carrier’s first quarter loss of $248 million, Yildirim expects the carrier to make money for all of 2012. He said the carrier broke even in April as freight rates increased and bunker prices fell. Major carriers, he said, had cut capacity and regained pricing discipline after “Maersk declared war” on the industry last fall by launching its Daily Maersk service to gain market share in the Asia-Europe trade.
Yildirim expects freight rates to remain at current levels through September, after which he said the outlook is less clear. “We are making the investment to make money, and we expect CMA CGM to become profitable, and that will give us the opportunity to do an IPO as our exit strategy,” he said.
Yildirim Group also is investing in ports, where it sees the most growth potential, through its Yilport subsidiary. It’s investing $500 million to build a greenfield port on the Bay of Izmir on Turkey’s Mediterranean coast and $250 million to expand its Yilport terminal in the Sea of Marmara 25 miles from Istanbul.
Yilport took its first step toward becoming a global port operator last year when it paid $246 million to buy a 50 percent stake of CMA CGM’s Malta Freeport transshipment hub. It plans to expand the terminal’s capacity to 5 million 20-foot equivalent units annually, from 1.2 million TEUs now.
The group plans to keep investing in ports because they’re not as volatile as shipping. “It’s like a chicken giving you an egg every day,” Yildirim said. The group intends to make Yilport one of the world’s “junior” terminal-operating companies and realize its value, which Yildirim estimated at $1.4 billion, by conducting an IPO or merging with one of the large global port operators.
“I feel comfortable in ports because I have a good knowhow, Yildirim said, “but in shipping I don’t feel good because I don’t have a grounding in ship operations.”