Why CMA CGM's New Investor Is Good for Shippers

Why CMA CGM's New Investor Is Good for Shippers

The French government’s long-expected decision to invest in CMA CGM will give the French carrier access to much-needed capital funds at a time when it is trying to restructure more than $5 billion of debt with some 75 bank creditors.

The $150 million capital infusion, which follows a private investment by Turkey’s Yildirim Group two years ago, will reassure shippers that CMA CGM will be able to continue its global liner services.

CMA CGM, the world’s second-largest ocean carrier by fleet capacity, has been seeking outside investment to help it renegotiate the bank loans it took to order new ships when global demand was stronger. Soon after taking the loans, its balance sheet was thrown out of kilter by the 2008-09 financial crisis and recession.

It also has been selling off some of its port assets to raise money to finance operations.

The carrier has pulled back sharply from ordering new ships in the last year. It has only 16 ships on order with a capacity of 146,000 20-foot-equivalent units, representing 10.8 percent of its existing fleet, according to research analyst Alphaliner. Before the 2008-09 recession, its orderbook was equivalent to about half of its fleet.”

Two years ago it succeeded in getting a $150 million capital investment from Yildirim Group, a privately held Turkish industrial company, which acquired a stake of 20 percent in return. CMA CGM also transferred 50 percent of its Malta transshipment hub to Yildirim Ports.

The Yildirim infusion was supposed to pave the way for Fonds Stratégique d’Investissement, the French government’s sovereign wealth fund, to invest in the carrier, but it took until now to make the deal.

FIS will buy $150 million in CMA CGM convertible bonds that will give it the right to convert them into a 6 percent stake in the carrier. At the same time, Yildirim Group will subscribe to $100 million in bonds that it can redeem for shares that will give it another 4 percent stake in CMA CGM, bringing its total stake to 24 percent.

Robert Yuksel Yildirim, president of Yildirim Group, in June said his company planned to exercise its option to invest $250 million in CMA CGM for another 10 percent stake, but this investment has since been renegotiated down. 

 “Surely their bankers will be delighted that the new finances don’t come from them,” said Philip Damas, division director of Drewry Supply Chain Advisors in London.

Many carriers need additional capital investment in a time when low freight rates and weak demand are depressing earnings. “I find it interesting that there is a trend now for many container shipping lines to move closer to their national or local governments as shareholders,” Damas said.

He cited such carriers as Hapag-Lloyd, United Arab Shipping, Cosco, China Shipping, APL and Yang Ming, all of which are partly owned by their national or local governments.

CMA CGM rebounded to a $178 million net profit in the second quarter of this year from a $248 million net loss in the opening three months of the year. 

Contact Peter T. Leach at pleach@joc.com. Follow him on Twitter @ptleach