'We are not broke!' – CMA CGM - French firm forks out US$30M to convince Gov’t it can finance port takeover plan

A decision by two of the world's top-rated agencies, Standard & Poor's and Moody's to downgrade the company slated to take over the operations at Kingston Container Terminal (KCT) on July 1, has thrown government officials into panic mode as fear of a setback in the deal looms.

But officials of the CMA CGM Group, which owns the Kingston Freeport Terminal Limited (KFTL), have told The Sunday Gleaner that the fears are unfounded and the deal will be consummated as scheduled.

With the planned takeover of the operations, the CMA CGM Group will be responsible for upgrading and operating the port. It is expected that Jamaica will see significant benefits in earnings from the number of ships using the port and the quantity of cargo that will pass through under the new agreement.

Any delay in this take over could mean that the current operators would have to find the millions of US dollars needed for the expansion to take advantage of the ongoing work on the Panama Canal.

Government sources had told The Sunday Gleaner that news of CMA CGM Group downgrades left senior members of the Andrew Holness administration worried that this could impact CMA CGM's ability to raise funds to carry out needed dredging operations of sections of the Kingston Harbour to allow larger vessels to access the port.

According to the sources, the administration was also concerned that the process was in danger of collapsing as reports surfaced that CMA CGM was having difficulties raising monies for its Jamaican operations.

 

MEETING

 

But Olivier Tretout, chief executive officer of KFTL, told our news team that officials from CMA CGM met with government representatives in Jamaica three weeks ago to allay fears that the deal could collapse.

"First of all, we are not broke. You must understand that we are talking about the third-largest shipping liner in the world, behind Wan Hai of China and Maersk. We know that the downgrade was coming because of the shipping business worldwide. And if one agency gives a downgrade, then the others will follow. So it's not very big surprise," said Tretout.

He confirmed that high-level company officials were called to a meeting with high-level Jamaican government officials and the company was requested to demonstrate "good faith" to quell fears of either a collapse or longer-than-expected delay in the takeover arrangement.

According to Tretout, good faith was demonstrated by way of a US$30 million deposit in escrow by CMA CGM days after this request was made by Jamaican government officials.

He pointed to Alphaliner Weekly Review - a newsletter which highlights shipping industry news - to substantiate his argument of the solvency of CMA CGM.

In its survey of 16 main carriers and their financial results in 2015, the newsletter said that despite the challenging market conditions, half of the shipping lines recorded operating profits last year, including CMA CGM.

However, profit margins were reduced for all companies.

To demonstrate the financial strength of the company, which has its home office in France and operates in several other countries around the world, Tretout said CMA CGM has recently acquired the Singapore national shipping line, Neptune Oriental Line (NOL), paying US$2.5 billion to do so.

 

IMPROVED LIQUIDITY EXPECTED 

 

He said the company's liquidity is expected to further improve when it sells some non-essential businesses.

Tretout admitted, however, that there were delays even as the company and Jamaican officials wanted to get ahead. Some of the delays were caused by the political campaign since last September, as no one wanted to make binding decisions that could change after the elections.

Head of the Port Authority of Jamaica, Professor Gordon Shirley supported Tretout's claim that the July 1 takeover date will be met.

"The recent downgrade of CMA CGM is not expected to have an impact on the financial close and handover of the operations of the Kingston Container Terminal to Kingston Freeport Terminal Limited, a subsidiary of CMA CGM," said Shirley in an interview with The Sunday Gleaner.

According to Shirley, there was no truth to suggestions that financial institutions were not supportive of the arrangement. He said the leadership of CMA CGM has indicated that its strategy remains unchanged.

Shirley, however, like Tretout, admitted that there were challenges worldwide.

"The current trading environment is very challenging with freight rates currently at very low levels. This has had an impact on the earnings and the liquidity of all shipping lines.

"Despite lower margins, CMA CGM has continued to outperform its peers in the industry on the basis of efficient cost base which consistently remains one of the lowest in the industry," added Shirley.

The Port Authority boss said the acquisition of the port by CMA CGM is likely to have a positive impact on Kingston, given its strategic location and the expansion of the Panama Canal.

 

INCREASED VOLUME

 

He said the volume controlled by CMA CGM coming into the region is expected to increase with the acquisition of additional east-west routes.

The KCT Concession Agreement calls for the operations of the port to be taken over by KCTL - a special-purpose company fully owned by CMA CGM.

Under the terms of the agreement, KFTL will invest up to US$510 million in the first five years to dredge the access channel to the terminal, deepen the turning basin, rebuild the quay walls, replace older cranes and acquire new ones, expand the container-handling equipment and improve technology infrastructure.

Shirley said the Port Authority of Jamaica would receive an upfront payment of US$75 million for the equipment currently on the terminal, an annual lease payment of US$15 million, and an annual payment of eight per cent of the gross revenues of the terminal.