A knack for turning adversity into advantage

Chilean investor Ricardo Claro, the man who turned Compania Sudamericana de Vapores into a key player in the north-south container trades, offers an exclusive insight into the company. 

IT is not easy getting to meet Ricardo Claro. One of Chile’s most revered investors, he has built up an empire of international businesses ranging from vineyards to port operations, from tugboats to containerships, but he has little interest in shouting about his achievements.

In the typically tight-lipped container industry he is as secretive as they come. But with a proven investment acumen stretching back over five decades, when he does speak, people invariably listen.

A string of success stories in his diverse business interests makes him stand out among his peers, a group of shipping and port specialists in Chile that includes the Von Appen and Urenda groups.

The remarkable growth of CSAV, from a company that moved less than 200,000 teu when Mr Claro first took control in 1988, to the 1,841,000 teu handled last year, has resulted in the group being held up as a role model for Chilean progress.

It is viewed as an international company that has shown it is possible for Latin American enterprises to flourish in the face of fierce competition from larger northern hemisphere rivals.

The success of CSAV, when compared to that of its South American rivals, has become a powerful symbol of Chile’s ability to remain immune to the crises that have plagued its neighbours.

CSAV’s position as just one of a handful of liner companies able to command an investment grade credit rating, further emphasises the success of the Chilean economy, which boasts the strongest sovereign credit rating in Latin America.

Mr Claro points out with great delight that CSAV’s rating is better than that of nearly all the governments of South America.

CSAV’s acquisitions of Brazilian and Uruguayan rivals, Libra and Montemar, and more recently Asian specialist Norasia, underline the capacity of the relatively small country’s ability to punch above its weight in global markets.

The acquisition of Libra and Montemar, completed in 1999 at the height of the crisis that gripped the container industry following the collapse of the Asian economies in 1998, is a good example of Mr Claro’s uncanny habit of being able to turn adversity to his advantage.

“I have understood for a long time that the Chinese symbol for the word crisis is the same as for the word opportunity,” he notes with a mischievous smile.

Mr Claro owns almost 44% of CSAV, the largest of his diverse interests, through his investment vehicle Maritima de Inversiones. On today’s prices the Maritima de Inversiones stake is worth US$441m.

With so much tied up in China, it is little surprise the country holds such great fascination for the septuagenarian investor, an avid reader and keen student of world developments.

The theme of China and its remarkable growth and just how long such growth can be sustained, is employing a great deal of his organisation’s time.

Halfway through a monumental $1.2bn newbuilding programme that places all his previous investments in the shade, Mr Claro’s preoccupation with China is all the more understandable. In total, the company and its 50-50 joint venture partner Peter Dohle have placed orders for up to 22 ships in the last two years, representing a total addition of up to 108,700 teu, more than two-thirds of the total container capacity of the company’s existing 65-strong box fleet.

On existing figures, the company’s 161,086 teu container fleet makes it the 17th largest container operator in the world. But it owns very little of its existing tonnage, making the company heavily exposed to the charter market. In 2003, the company and its subsidiaries chartered 167 ships to complement the 14 deepsea vessels it has on its books.

“At the moment we have a small amount of our own ships and we want to have a bigger base of owned vessels,” says Mr Claro, explaining the recent order spree. “Besides there are some traffics that are demanding a change in the size of the ships. Norasia needs bigger ships.”

With Norasia fast becoming the jewel in the CSAV crown, the bulk of the larger vessels including up to six 6,500 teu vessels on order at Hyundai Heavy Industries are destined for that company as it seeks to expand into India and to build on its business in China and Europe with a round the world service.

The group is in talks to acquire 14 offices in India, which will precede new services to the world’s second most populated economy.

The move reflects a continuation of a strategy that Mr Claro put into effect when he took control of one of the five oldest companies in Chile, 15 years ago.

“The first strategy that I put to the company was to stop being a company exclusively in the Pacific Ocean and to look at the Atlantic,” he recalls.

“We started with lines to the Far East and Europe from the Atlantic coast, then we put a regional office in Brazil and afterwards we were able to acquire control of Libra Navegaçao.”

The next logical step was the expansion into China with the acquisition of the Malta-based Norasia, with its links between Europe and the Far East. Norasia was acquired for $38m in 2000, after it had hit financial difficulties.

Three years later, the investment has nearly paid for itself despite teething problems and losses for the first year and a half. There is a sense that watching his horses come from behind to win is all part of the fun for Mr Claro.

The group’s diversification into the tanker and bulk business, through a fleet of ten Aframax ore/bulk/oil carriers operated by Norwegian tanker specialist Kristian Gerhard Jebsen, is an example of how persistence and flexible management can transform losses into healthy returns. Mr Claro sold CSAV’s 50% stake in the business for $149.5m last week to the group’s Norwegian partners for a handsome $50m profit.

His vineyard, meanwhile — the Santa Rita stable — now exports to more than 60 countries and is listed on the Chilean stock exchange with a market value of $200m.

To demonstrate his long-term investment approach, he explains how his belief in China and the need to increase CSAV’s presence accordingly in the Atlantic stretches back to a visit he made to the country more than 25 years ago. “I was with Deng Xiaoping in 1978 and I listened to him and all his plans to mobilise China,” says Mr Claro. “I listened to Xiaoping for an hour and a half, about how China was a country that was behind the imperialist countries, the US and other countries in Asia, and how he had started to change the economy starting with the allowance of foreign investment.

“We already knew that we were in a country in the ascendancy because Deng Xiaoping struck me as a statesman, a man who did what he said. He delivered, not like the politicians in Latin America.”

Today, Mr Claro remains focused on serving the principal markets, China, Europe and of course, the US. “There are a lot of problems in the global economy. This year has been very good for shipping lines, but it’s a year that presents certain problems,” he says.

In the US, he says that the winning presidential candidate will have to adjust to two things: the high fiscal deficit and the balance of payments deficit.

Economists suggest that by November next year interest rates will be 5%, producing an important adjustment.

In China, Mr Claro is more optimistic concerning the likely slowdown in the country’s breakneck growth. “At the moment, China is growing at 9%, but that is going to drop to 7.5%. Although it is an important figure, it will not have an enormous effect on world development.”

The significance of a difference of one or two points in the slowdown in China’s growth could decide the extent to which the company implements its proposed fleet expansion.

Despite the obvious need of CSAV to reduce its dependence on the costly charter market, the amount of vessels that are incorporated into the fleet remains far from clear.

Recent history has shown that Mr Claro does not always employ the ships he orders. Between 1993 and 1999, the company built 16 vessels, which it ended up selling on to other owners, generating healthy profits to pay for a repeat order for even larger vessels.

This type of asset-play is something Mr Claro attributes to his appreciation for the ‘Greek’ approach to shipping.

“I learned when I began the shipping business that there are two sides to the business; one is the efficient transport of products and the other is what is called the business of the Greeks.

“This is to do with a little asset play,” he says.

CSAV and its German finance partner have already shown that they are prepared to take advantage of today’s booming shipping market by taking the handsome resale profits on offer.

The company and its German partner reportedly sold a pair of 4,050 teu container vessels on order with China Shipbuilding Corp and due for delivery in 2006 to German finance specialist, Conti Reederei for $56m each at the end of last month.

When asked whether he might be tempted to sell the current wave of ships in the same manner as he did with the last, he says: “We have sold a couple of ships giving very good profits and so you can guess. It depends on the market.”

Those looking to read which way that market is going would be wise to keep a close eye on what steps he takes in the next few months. The problem being that by then it might already be too late.

By Rainbow Nelson, Lloyd's List