When the Turkish Yildirim Group invested in the French container line CMA CGM three years ago, it came as a surprise to many market players. Meanwhile, the President and CEO of the family-owned company, Robert Yuskel Yildirim, is no stranger in the shipping industry anymore. In this interview with HANSA he gives insights into his strategy
Mr. Yildirim, not many people in the shipping industry were familiar with your name three years ago. This has[ds_preview] probably changed?
Robert Yuksel Yildirim: Our transaction with CMA CGM came as a surprise, indeed. Few people in the maritime industry knew our name when we bought 20 % of the French container line in 2010. Since then we have been growing in the maritime business, not only as a private equity investor in this company, but also with our port and shipbuilding activities. Thus, we get a lot of recognition and appreciation in the market today. For example last year »Lloyd’s List« selected me into the 50 most influential shipping people worldwide and we have received in October a »Highly Commended Award« in the category »Company of the Year« by »Lloyd’s List«.
Having raised your stake to 24 % this year, you altogether invested 600 mill. $ in CMA CGM through convertible bonds. There were not many investors who would take this risk.
Yildirim: Yes, a lot of them burnt their fingers with other shipping investments. Since we were new in the industry, we could take advantage of the situation and invest in a temporarily distressed, but good and very well managed company like CMA CGM. Only the time was wrong when they made these big orders.
Why did they choose you as a partner?
Yildirim: We were the least demanding among the potential investors, to which for example Goldman Sachs, Albert Frère, and the Qatar Holding belonged, because we have focused on sustainability. And we both are family-owned companies. They are originally from Lebanon, we are from Turkey, hence there are cultural similarities. Altogether it was a perfect fit.
Are you satisfied with your decision so far?
Yildirim: We are very happy and are making a good return on the investment. The first year was a bit difficult, however, since the shipping market double-dipped. Also, we had to get to know the company and understand its business. Once we identified the characteristics of CMA CGM and the container industry as a whole we proposed the necessary adjustments.
Could you specify the kind of adjustments?
Yildirim: The company needed some restructuring and financial discipline in order to lift off when the market recovers. First of all, we suggested a cost-cutting programme to the board of directors. In total 400 mill. $ were saved within only one year. We also proposed to delay the delivery of newbuildings in order to decrease the financial exposure of the company. This was all executed. Furthermore, port tariffs were renegotiated. At the end, the financial performance of CMA CGM improved significantly.
Through your three seats on the board of directors are you involved in important operational decisions such as the order of 16,000 TEU vessels?
Yildirim: Yes, every major decision needs our approval. In case of the mentioned vessels I was in favour from the beginning. Three ships were upgraded from 14,000 to 16,000 TEU, because they operate even more cost-efficient now, and further six were ordered. Another important decision was the foundation of the P3 alliance like in the aviation industry. Maersk obviously realized that they cannot win the freight rate battle without suffering themselves, so they approached MSC and CMA CGM. Suddenly they all sat at one table to establish a joint vessel operations centre.
But it wasn’t easy to get there since the three companies were competing so fiercely in the past. Actually, it is too good to believe. My opinion is that cooperation is always good. Thus, I strongly encouraged this step, to put the old egos aside and to work together in a constructive manner. It is a revolution in the container industries that shook the market. Others will follow and consolidation will take place, which is necessary for the industry to recover.
Bearing your active role in the management in mind, is the scope of your investment strategic or rather financial?
Yildirim: It is mainly a financial investment, but it also has a strategic component. Since many years CMA CGM has been an important customer in Yilport in Gebze, which belongs to the Yildirim Group. We also work together with them at the Malta Freeport Terminal, in which we bought 50 % last year.
What is your exit strategy for the CMA CGM investment?
Yildirim: The bonds have a five-year term. An IPO is a very likely option, probably already at the end of 2014. We might bring all or a part of our shares into the public offering. This will be discussed with the Saadé family at the beginning of next year.
Are you considering further investments in shipping?
Yildirim: I don’t want to put all eggs in one basket, so we are investing more in our port business at the moment. However, we plan to slowly grow our own fleet, which consists of nine bulkers and ten chemical tankers currently. Therefore, we are also looking to buy distressed ships from German banks and have named the Hamburg-based lawyer Kubilay Falkenberg* as our special representative for all ship finance matters. But it is not so easy. Shipping banks are looking through their own glasses and don’t understand our perspective being more than just a shipping company. So it is hard to get along with them and do the business. But we are very ambitious and maintain discussions with their restructuring departments.
What kind of vessels are you interested in?
Yildirim: Mainly bulk vessels. We are not so much interested in containerships, though. But we are open to all kind of cooperations. For example, the order of a new eco-designed ULCS might be a good deal if you have a long-term charter from a container line. We could organise the financing, put our equity in and arrange the employment – it would be the classic model that we see often these days.
From the point of timing, your investment in CMA CGM obviously wasn’t bad. How do you make your investment decisions?
Yildirim: In terms of shipping-relevant information, we are sitting in a gold mine. Since our group handles and produces raw materials for many industries such as coal, steel, cement or fertilizers, we obtain a lot of information from those businesses. We see the order books months in beforehand and can make adjustments. Shipping investors and operators with a non-trading or non-producing background get their information only from market reports. Sometimes this information is good, sometimes bad – that’s why mistakes are made.
It seems that most investors have been too optimistic in the past. And in view of the recent order activity, they apparently still are…
Yildirim: Today as a rule with few exceptions, the shipping industry doesn’t need new ships, regardless of how economical and environmentally friendly they are. We shouldn’t oversupply the market again. The problem is that the entry barrier to become a shipowner is rather low. You basically only need money and can externalize all services. Because we are at the bottom of the market, we see private equity and hedge funds coming back as if nothing has happened before and investing in new tonnage without any clue of later employment. From the shipyards’ perspective, however, it makes sense to whet the appetite for new designs and more efficient ships in order to maintain their business. Also the banks have to do something to stay in the business. So there is not one right or wrong way to act in this market environment, but all players are responsible.
Being an industrial conglomerate with a broad focus, which significance has shipping for the Yildirim Group in general?
Yildirim: Shipping is a must for the transportation of our commodities. A good part of our investments in the maritime industry are based on our cargos. As a producer we thus maintain control in our transportation costs. That means a business unit like shipping does not only need to be profitable by itself, it also has to bring synergies to our whole group. This philosophy is part of our DNA.
So, a growing industrial business could lead to a larger fleet?
Yildirim: Yes, for instance we are developing our own energy branch at the moment and plan to build coal-fired power plants in Turkey with altogether almost 2.9 GW. That would mean nearly 9–10 mill. t of coal of a certain calorific value have to be imported every year. Calculated on capesize vessels we would need nine or ten of such ships. It is in our pipeline to order them – not today, but maybe in one or two years, and to buy few as distressed assets. It would be easy for me to get the financing for the vessels, since there is a contract for around 30 years along the power plants. But before that we have to finish our tender for that plants.
Regarding the whole shipping environment, we act very carefully. New cargo is going to come to the market, thus the new vessels are not going to break the supply-demand balance in shipping. But if I would be a shipowner without having my own cargo, I would have to take a high risk. I maybe could know that somebody is about to build such power plants and that there will be demand for ships, but maybe five other shipowners will see the same opportunity and would also order ships. Hence, they all compete for the same cargo. So I come back to our concept of synergy by giving you this example: Our strategic goal is to transport our own cargo via our own ports and terminals by our own vessels to our own power plants. There are specific challenges for this strategy, but we strongly believe in this.
You mentioned that ports are even more in your focus than direct investments into shipping. What is your growth strategy here?
Yildirim: Our strategy is to buy a minimum of two ports per year and thus globally belong to the top 10 port operators and top 20 terminal operators in the future. Last year we already bought two ports in Turkey and the stake in the aforementioned port in Malta.
Do you look into specific regions for acquisitions?
Yildirim: Emerging markets like Africa and Latin America are in our focus. We are about to sign a memorandum of understanding to buy a port in West Africa and another one in Latin America. Also we are looking into Turkey, where we want to grow as much as possible. With four multi-purpose ports, Yilport is already the number one port operator here while providing the most complex services to our clients. Furthermore, we are expanding our current port capacities in Turkey and Malta and double them within the next three to four years. For example, the port of Gemlik will enhance its existing capacities from 1 to 2 mill. TEU after merging with another port we bought next to it. At the end of this phase, Yilport Holding will be minimum three times bigger as it is today. And this is in line with the forecasts for Turkey: Our government aims to reach 500 bill. $ on Turkish exports by 2023, three times as much as today. Therefore, our country has to enhance its port facilities. Commodities and goods reach us mainly by sea and leave it as finished or semi-finished products via ports as well – and we are there to handle them.
How do you plan to finance this expansion?
Yildirim: We are currently inviting infrastructure funds and investors in order to sell between 20 to 30 % of Yilport Holding. We want to use the leverage and take this money for new investments.
There is a lot of talk about new container hubs in the Mediterranean. Have you thought about establishing a big terminal yourself?
Yildirim: I am not sure about this hub idea. Also, we are not so keen on establishing a port with a container throughput at a large scale like Hamburg. You don’t make too much money with this kind of business. You get a lot of volume, but you work with very small margins – like peanuts. For running 5 or 10 mill. TEU per year, you need so many people, equipment, investment – and then you have to give almost everything to the liners, to make them happy to stay there. Basically, you produce only a big cash flow. Domestic ports are often more profitable as they demand more quality services. With 150,000 to 200,000 TEU throughput per year you can make already good earnings. And since our company is mainly profit- and not revenue-driven, we are looking into regions with upside potential like Latin America, Africa or the Middle East.
Nikos Späth
