Thought this interview was very good, gives you some insight into the grey area between physical commodity trading and merchant banking / industrial investment; where most of the heavyweights in the commodity world now operate.
I kind of wanted to post it in the I-banking forum,just for this quip:
""Investment banks don't bring us any good deals. So far, all have been done through our own creation; I approach the owners personally. Banks are involved at the final stage for financing, not for advising, but they never bring in the M&A deals to us," he said.
"We usually find the M&A projects by ourselves and I talk to my two brothers; it's a very quick decision-making between three brothers," he added. ""
Full article below
INTERVIEW: Robert Yildirim – a logical deal-maker
January 08, 2014 - 14:04 GMT Location: London
Yildirim Group president and ceo Robert Yuksel Yildirim has a high profile in the ferro-alloys markets and – with his two brothers – controls a diverse collection of businesses in eleven industrial sectors. A high-tech engineer by training, Yildirim brings a logical approach to many years of successful deal-making, reports Janie Davies
Talking to Metal Bulletin in the board room of his family firm's offices in Istanbul, Yildirim asks to break several times to take calls and meet lawyers, while staff dart in and out with documents for him to sign off.
The middle brother in the trio that controls the $6.5 billion Yildirim Group of Companies – 36 firms across eleven industrial sectors – the president and ceo is a renowned figure in the ferro-alloys markets, with chrome and ferro-silicon assets, and an eye on manganese ore.
Consolidating the high carbon ferro-chrome market through the purchase of Mechel's chrome assets was an obligation for the group as it fought to save its existing operations, according to Yildirim.
He didn't agree to pay nearly half a billion dollars for the Tikhvin Ferro-alloys Plants in Russia and the Voskhod Mining Plant in Kazakhstan to increase his own volumes – he did it to secure investments he had already made, he said.
"I didn't need more chrome ore and high carbon ferro-chrome in today's market to own Voskhod and Tikhvin. I have plenty of chrome and could always buy more from others in the market," he said.
Tikhvin will increase the group's ferro-chrome volumes – produced at Eti Krom in Turkey and Vargon Alloys in Sweden – by 31% to 550,000 tpy. Eti Krom has 100 million tonnes of chrome ore reserves and 150 million tonnes of chrome ore resources and Voskhod will increase the company's total reserves and resources by 21% and 14.6%, respectively.
Yildirim says he wasn't the obvious suitor at first. But as other bidders including ENRC, Glencore and Kazakh hedge fund Verny Capital dropped out he said it became his responsibility to ensure producer discipline at a time when chrome prices were hovering at four-year lows.
"What made me buy those assets? The market needed consolidation. Low prices have been hurting my investments in Sweden and Turkey; this would never change until the other assets were in the hands of the right company," he said. "We are growing organically and inorganically in the chrome business."
"Who was the right company? ENRC. But when the leader in high carbon ferro-chrome didn't buy it, it was an obligation for me to pay the highest price in the tender. It wouldn't have given me any comfort for another player to get it. I'm trying to save the future of Eti Krom and Vargon by acquiring Mechel's chrome assets," he said.
The price Yildirim paid has provoked curiosity among other ferro-chrome players, not least because bank estimates on the value of the assets varied wildly from $150 million to almost $500 million and some unofficial estimates were as low as $50 million.
When challenged on that point, Yildirim halts the conversation and wanders thoughtfully into his adjacent office, returning momentarily with documents including a blue-chip bank valuation that bolsters his robust defence of the price he paid.
"In order to secure and protect my investment in Sweden, I had to buy Tikhvin. Some people say I've paid a higher price but in order not to lose this opportunity I had to pay the highest price in the tender and that's why I'm in and others are out," he said.
"If you imagine that officially Mechel paid $1.5 billion for these assets in 2008 and spent an additional $300 million to start and upgrade the operations, how could they sell these assets for less than $200 million? It was unrealistic. We made our valuation and paid the right price," he added.
"Our picture is not just Voskhod and Tikhvin. We look at the big picture. With this deal we have become the number two in the high carbon ferro-chrome business; we can sign long-term contracts with big consumers and once we make the necessary investments in cutting the costs of production, we can make our profit with a substantial increase in chrome ore in the next ten years," he said.
Yildirim calculates a return of $1.2 billion over ten years from the new additions and believes they will be worth at least $800 million as part of a core "basket" of ferro-chrome assets, but says he would not sell these new assets separately.
"It's not going to be easy but I will make sure that these assets pay our investment back in reasonable time. There are benefits from all assets in our basket," he said.
It is he who personally seeks out potential deals for the family firm.
"Investment banks don't bring us any good deals. So far, all have been done through our own creation; I approach the owners personally. Banks are involved at the final stage for financing, not for advising, but they never bring in the M&A deals to us," he said.
"We usually find the M&A projects by ourselves and I talk to my two brothers; it's a very quick decision-making between three brothers," he added.
Yildirim, who has an extensive engineering education, sees himself as lacking a traditional financial background, instead drawing on his technical knowledge and bullish ambition to master growth and problem-solving.
"My main studies were in robotics, computer-aided design and manufacturing and artificial intelligence. This gave me a different dimension in thinking for business and a different perspective for problem solving, reasoning and the solution tree, which gives me more than one solution, so I can make plans A, B, C and D for each case study.
"These are my strengths from my education in the US, which I use in our businesses and investments. I have no educational background in finance and economics; this was my deficit in my business decision-making, but I've made up for them by self-study."
Yildirim graduated in 1983 as a mechanical engineer from Istanbul Technical University then went to the USA for a year where he learned English and studied for his masters at the mechanical engineering department of Oregon State University. He started a PhD but decided not to complete it and went to work instead.
He worked for a Japanese-owned company in California as an engineer handling cranes and returned to Turkey later to complete his military service – mandatory in Turkey. Then he started work for the family firm that started as a construction material trading company founded by his father Garip Yildirim in 1963.
"After returning from the USA in May 1993, I decided to take the coal business of our family firm. I went to Siberia to buy house-heating sized coal to import to Turkey. That was my first job in the family business," Yildirim said.
He helped to grow their firm's coal trading volumes from 10,000 tonnes in 1993 to 3.5 million tonnes in 2003.
"I did it in a difficult way. I avoided buying coal from traders and bought it from miners and arranged my own rail transportation and shipping. In those days, I was competing with Glencore and other large coal traders in Russia. Since people were buying the sized coal $5-10 higher than my price, I could be competitive and flexible in our sales price. Thus, our sized coal business grew fastest," he said.
The brothers are tenacious owners, never afraid to be on the ground. "Our living style is simple and down to earth; we don't show off and we do not act like we're the owners. When we are doing our business, we are still acting like a regular businessman or a trader," Yildirim said.
In 2003, Yildirim terminated a joint venture he had in Turkey with Russian coal trader KruTrade, under which he had financed the coal exports. His exit left him with just one million tonnes of coal trading volumes from 3.5 million tonnes, giving him a big opportunity with a lot of cash to invest into new businesses.
"I had enough working capital in my hand for coal business those days and it was time to diversify into new businesses, but I wasn't sure which commodities and sectors. I was looking with my brothers for new M&A investments."
The brothers ordered four chemical tankers in Turkey to build and sell and started looking for investment opportunities in port, shipbuilding and bulk commodity trading.
In 2004, several Turkish state-owned companies were put up for privatisation. This is how Yildirim moved into ferro-chrome, acquiring Eti Krom. The group also bought Gemlik Fertilisers and the two neighbouring ports from private companies and built Yilport near Istanbul.
"This suddenly put us into a different league in business; we went from a trading house to a mining company, a ship and port owner, and a diversified industrial group," Yildirim said.
"Then it was time to rehabilitate these newly acquired companies because they were all losing money. We managed all the risks during every crisis and became well known in Turkey. Our expertise was very good in handling crisis and managing risk. We were investing in bad times for good days and that's how our group became very big, well known, active and grew," he said.
While a milestone for the company's development, the Turkish privatisation process also holds regrets for Yildirim, as he mulls over what else could have been.
If he could go back to those times with the knowledge and the clout he has today, there is so much more he would have done, he says.
"In those days we didn't know anything about ferro-chrome and global mining. Now I say I should have taken those risks, been bullish and blind and gone in with a brave heart," he said.
"Eti Copper, Eti Aluminium, Eti Electrometallurgy, Eti Silver: these are some of the companies we were in the tenders to buy but we didn't succeed. We didn't have the necessary finances to acquire them in those days (2003-2005) due to a lack of credit from banks. Today it would have been a piece of cake and we would be a top ten company in Turkey and the number one company in natural resources in Turkey," he said.
But it is one Russian deal that haunts him above all others.
During the privatisation of Russian assets in 1998 after the break-up of the Soviet Union, Yildirim was asked to help his business partner buy Kuzbassrazrezugol Coal Mining, now Russia's biggest coal miner owned by Uzbek oligarch Iskander Makhudov.
"My Russian coal partner asked me to finance them $50 million to acquire Kuzbassrazrezugol from privatisation. I didn't have $50 million to lend them at that time (1998). I spoke to the Turkish banks and none of them wanted to get involved nor finance it. They said Russia was risky and in crisis," he said.
"That was the best deal I missed in my life and I always regret it."
Big in chrome
Still, the group is Europe's top chrome ore producer and the world's fourth largest ferro-chrome producer, as well as Turkey's top container terminal operator, top coke importer and third largest fertiliser company.
"Yildirim has long-stated his dream of building a "mini Glencore-style model," comparing his own trading origins to those of the Swiss-based trading house that also became a FTSE-listed miner.
"I want to be similar to Glencore but on a smaller scale," he said.
"Glencore started as a trader and became one of the world's biggest producers and traders of natural resources and commodities. We are similar but Glencore's scale is much bigger; we're currently only in a certain geography rather than globally, but the business model is similar," he added.
"I have no hesitation about whether my model will work; it's a proven and sound model," he said.
Yildirim has just been ranked by shipping expert Lloyds List among the top 100 most influential people in global shipping for the third year running.
Yildirim Group's expansion plans are ambitious; the company will expand in metals and mining, ports, energy and fertilisers over the next ten years. It plans to be among the top ten global port operators within ten years, through growth in South America and Africa, as well as Turkey and nearby regions.
There is still room for growth in chrome but the company has also been looking for a break into manganese ore.
"We want it and we've looked at manganese assets in South Africa, Gabon, Turkey, Brazil and the Democratic Republic of Congo. Some of them we wanted but could not get them, and some of them we did due diligence and decided not to invest; basically, we are selective nowadays," Yildirim said.
He will be closely following and examining the giant and major mining companies and funds. Nowadays, the company has started to divest certain assets.
"We are looking at spin-off deals from the big players. We hear that they're divesting assets in certain countries and we will be interested in these and if we see any workable deals, we are ready to initiate negotiations to acquire them, or invest in them and become an equity partner or minor shareholder," he said.
"These deals could be the interesting deals, something that is geographically or size-wise too small for giant players like Rio Tinto or BHP Billiton but could be a good size for us," he added.
Growth could be achieved through various options, including an initial public offering (IPO), but a Eurobond is the most likely next step.
"Next year we are planning to issue a Eurobond to finance our healthy growth in metals & mining in addition to our port business. We've been buying and buying, so that we have learned acquisition very well. Now we must learn how to sell or get minor strategic partners. Eventually we would become a target company to potentially sell them fully or partially, or we'd go to an IPO," Yildirim said.
"If we decide to sell our assets, we would need to sell minority shares to investors through private placements either to cut debts or take the money to re-invest into new assets and buy more companies to ensure that our growth is sustainable. We would buy assets in the low time and sell or invite investors in the high time," he said.
"Any IPO for us must take place in the best location for metals and mining," he said.
"It could be London, Toronto, New York or Hong Kong. We will consider an IPO after we allow private placement or a fund to come in and buy minority shares. We will let them exit at or after IPO, which will be a much easier exit for them," he said.
Now, the task of integrating the Mechel chromium assets into the group is at the top of Yildirim's agenda. Voskhod's high-quality chrome should give Yildirim's chrome division an advantage, he believes.
"Our intention isn't only to make money; we also have to find the optimal way to grow in ferro-chrome," he said.
"I can always build new furnaces with low-cost technology. However, we are now studying how we can reduce our production costs. We will have very high-quality chrome ore in our hands to enhance our ferro-chrome. We already have the lowest phosphorus in the world and we can make HC ferro-chrome with very high chrome content as well. Our HC ferro-chrome products will be the best in the world for special steel applications," he said.
Spot ferro-chrome prices have started to stir in recent weeks following an abysmal year and market participants are preparing for higher prices in the seasonally strong first quarter.
"Ferro-chrome is the only commodity today that hasn't really recovered since the financial crisis of 2009 and it's mainly due to a lack of producer discipline," Yildirim said.
Higher oil prices, spiralling South African power costs and rising Turkish labour costs will help support higher prices, he added, noting a perceived shift by high carbon ferro-chrome producers away from spot sales.
"From now on, high carbon ferro-chrome producers believe that the sales strategy in the market has to be revised for profit making. The number of reliable ferro-chrome traders will be shrinking and the recovery will start soon," he said.
"As of the middle of December 2013, traders' stock positions are almost depleted and stainless mills are using most of their raw materials stocks for end-of-year inventory, which will lead to very high demand in January and February," he said.
Changes to the EU's Generalised Scheme of Preferences (GSP) from 2014 will be an important factor, as countries including Kazakhstan and Russia will cease to benefit from the scheme, which gives preferential treatment to so-called developing countries by partially or entirely removing duties on their exports to the EU.
Producers in those countries suddenly liable for the duties are expected to pass their costs on to consumers, many market participants believe.
"The most important reason for higher spot prices is that duties on Kazakh and Russian material are rising and this will cause an increase in the spot market of at least 4-5 cents per lb from 2014," he said.
Yildirim is also confident that chrome miners will increasingly have an edge over the next few years as ferro-chrome producers without the raw material, such as those in China, seek feed. He has previously said he would look at joint venture opportunities in the Chinese ferro-chrome market.
"Yes, I'm planning to grow in the chrome business. Ferro-chrome is always an option for us; we believe that these new ferro-chrome investments in China will force some of the small players out of business and fresh capital will be required for their smooth operation," he said.
"The fact that Chinese companies invested in ferro-chrome production with no chrome ore will eventually force them to come to South Africa and Turkey to the major chrome ore miners to set up their JV businesses. It will not happen today but will happen within five years' time," he added.
And with that, and his older brother chairman Ali Riza Yildirim beckoning at the door, he makes his excuses and leaves, preparing the final touches to nail down the Mechel deal.