CMA-CGM cheats death to rise again

The news that French-based shipping giant CMA-CGM has agreed on a debt restructuring plan with its creditors is a milestone in the recovery of the container shipping sector since the crash of 2009.

In 2008-2009, CMA-CGM looked vulnerable, trapped between substantial debts and falling freight-rates. However, the company was partially rescued in the short-term by a combination of higher rates in 2010 and in the medium-term by the investment of the Yildirim family.

An agreement outlined on Tuesday (12/02/13), will give CMA-CGM a new €280m line of credit from its original financing institutions, and an injection of US$150m of new debt from a French state investment organisation as well as a further US$100m of bonds from the Yildirim Group. The bonds will give the French state and the Yildirim Group 6% and 4% of the equity respectively, if they choose to exercise a conversion option.

The Chief Executive of CMA-CGM, Rodolphe Saadé, described the refinancing as one that “constitutes key milestones before contemplating an IPO”. The long term plan is for the shipping company to be floated on the stock exchange – presumably the Paris stock exchange. This may enable the Yildirim Group to reduce its exposure to the company as well as giving CMA-CGM the option of a further shift from debt to equity. The Saade family remains in control of CMA-CGM however, as it retains 70% of the company’s equity, even after the refinancing.

The story of the survival of CMA-CGM is impressive. Although it has been forced to make disposals – recently selling some equity in port assets to China Merchants for €400m – and the Saade family has had to reduce it’s holding in the firm, CMA-CGM has survived as a leading container shipping company. It has continued to invest in big new vessels. In addition, the Saade family have proved themselves skilled in accessing new sources of finance both outside and inside France.

Yet, the very ability of such a company to avoid major consolidation, let alone liquidation, might be a clue as to why the container shipping market remains so oversupplied.