William Brandt is the court-appointed trustee overseeing the sale of Pacific Andes’ Peruvian assets. He spoke with SeafoodSource on 12 June regarding the ongoing sales process.
SeafoodSource: What is the latest regarding your attempts to sell CFG Peru?
Brandt: We have talked with virtually everybody in the world who would want this and we’ve received some offers already – some written – but not of sufficient value to trigger the release price on the netting agreement, which is a rather significant issue. There is no shortage of interest and in fact there are some offers, but not of sufficient value to trigger a sale of the business under the frame of the netting agreement, which is a big issue.
SeafoodSource: What is your current best estimate of what that netting agreement threshold is?
Brandt: There is a certain set number in the netting agreement; that number moves monthly with the accrual of interest. The truth is, that isn’t bothering me because [CFG Peru is] making so much money that it’s offsetting the accrual of interest. On the other hand, you still need to deal with a set price and under that netting order, all of the Peruvian creditors, plus the interest, plus the cost of administration must paid in full before the stock can be transferred. Our best estimate of that, as of 31 October, 2018, is a little bit over USD 1.1 billion – our last calculation was USD 1.12 billion (EUR 975 million). That’s what it takes for me to fairly represent to the court that I have more than enough cash in a purchase-offer structure under the netting order so I can provide the buyer with the comfort of being certain there are no remaining creditors. Now, I don’t know if they’ll take that figure. It might be USD 30 million to USD 40 million (EUR 27 million to EUR 34 million) less than that, but that calculation provides some cushion we can pull this off. If that price is met, there are no objections to the sale.
SeafoodSource: How has CFG Peru been performing recently, and does that affect its sale price?
Brandt: By end of year, we will be sitting on something like USD 150 million to USD 170 million (EUR 133 million to EUR 150 million) – that looks doable by the end of the year. If that’s the case, what you’re really talking about is approximately USD 950 million (EUR 842 million) in new cash [for an offer to reach the netting agreement’s threshold], because you’re also buying the cash that’s accrued.
At a sale price of USD 1.2 billion (EUR 1.06 billion), that’s about 67 million per point [of anchovy quota], which is historically low for the Peruvian fishmeal sector. And the multiple on that from an EBITDA standpoint – we did USD 156 million (EUR 138.3 million) [in earnings last year], so it’s just over 7x, while private equity are paying 8x to 10x multiples. So the valuations aren’t the issue; it is the singularity of buying that much quota and being that politically vulnerable by doing so. And it’s also all of the other baggage that this company has. People want to know if they buy this asset, that three years later … there isn’t a tap on the shoulder and there’s a creditor saying, ‘Hey, by the way, you didn’t know this but you owe me USD 100 million.’ It’s those kind of concerns we’re dealing with. I think we’ve worked through most of them. But I also think with the sheer size of this transaction, it wouldn’t surprise me now if a consortium of people – two or three bidders – got together and put a joint bid.
SeafoodSource: Have you been surprised at how long it is taking to sell CFG Peru? Do you think there is any trepidation on behalf of buyers at becoming involved in some of the larger issues surrounding Pacific Andes?
Brandt: Unequivocally, yes. We are all wondering at the length of time it has taken to sell it. Everybody in the industry seems to marvel in fact at this once-in-a-lifetime opportunity – by all rights and value, it should have long since sold. One of the things that occurred to us in respect to the sale is that it is precisely all the baggage that has hung on this tree that makes it a hard sale. It isn’t the valuation, nobody seems to argue with that, it’s all the baggage. The good news is it’s taken a long time to sell the business – it’s bad news too – but in that two years’ time, all of the collateral issues from the tax returns to the audits, to all of the fights with the Ngs [the family in control of Pacific Andes] over other boats like the Damanzaihao and the boats in Namibia and Samoa, are all sold or about to be sold. So all the shrubbery has been cleared up and I have basically surmounted or won every one of those battles. That is making this sale an easier sale to do, notwithstanding the fact that it is still a take-your-breath-away type sale.
SeafoodSource: What was behind your decision to ask for the help of Asab Investment in soliciting interest in the sale?
Brandt: I recognized early on that many of the worldwide entrepreneurs that were talking about buying this have it in the back of their mind that while Peru has been a very welcoming entity for overseas investments – it’s one of the more solid citizens in the world in attracting overseas investment, especially considering mining and fishing are considered two of its big industries – but many of the world’s entrepreneurs who are used to working in various political systems around the world believe that if they buy the largest fishing quota in Peru for north of USD 1 billion (EUR 887 million), that at some point farther down the line, they might not have the political capital they need since they weren’t Peruvian nationals. If the political upheavals in Peru continue, that could affect the quota system, and they wouldn’t have a way to offset that. The sovereign funds are all essentially government-owned, so if you are Peru and you become of a mind to change the quota system, but the largest quota owner was another government, I think that would force a bit of soberness into the conversation about what you would or couldn’t do, because there’s a gravity on both sides that perhaps a singular entrepreneur doesn’t bring to the table.
I’ve had conversations with three or four sovereign funds already apart from the ones that are mentioned in the court documents, two of which are bigger than any of the ones mentioned in the court documents. In talking with them I did use an intermediary. I made no payment for that because we were just exploring opportunities. But in the case of Middle Eastern funds, it’s important to engage through a very-well recognized intermediary, and that was Asab, which has been helping me in reaching out to entities in Dubai.
Unfortunately, the attendant publicity that already come out of this has soured them on this particular episode, and I’m not sure that we’re going to go forward. They work best under the radar, and they’re thinking it’s not exactly under the radar now, so I’m not sure if we’ll go forward with this particular application. They don’t need the work. Their connections are good enough that a lot of people are trying to get them to work for them, so it may have been the attending publicity was more than they choose to bear. I’m going to talk to them in the next several days but given the publicity, I sense a reluctance on their part to go forward.
This is the downside of the bankruptcy process. I’m trying to manage a north-of-USD 1 billion sale under the glare of complete transparency. It’s very tough to do that when everyone is watching what you’re doing on a real-time basis and critiquing it or otherwise getting in the way. I know that comes with the territory – don’t buy me any flowers for that, But I also recognize that in some cases, such as case of Asab, people don’t have to work for me or with me, and if they don’t want attendant publicity, they can say no, which has happened in this case.
That doesn’t mean I won’t use other intermediaries. I have a couple of others [I can reach out to]. But I knew when I signed up for this that if I had to go to court to identify them, that’s just not the way these sovereign funds work with that kind of limelight, so we may have to refine our approach.
SeafoodSource: Are you now refining your approach to exclusively target sovereign wealth funds? Or is your effort still wider than that?
Brandt: I have now solicited more than 325 different entities. We’ve had meaningful conversations with more than 50 of those entities, probably a dozen to a dozen-and-a-half have signed [non-disclosure agreements] and done some form of due diligence. I have received expressions of interest and in one or two cases I have received formal offers. However, those offers were insufficient to trigger the price release under the netting agreement, so I had to write back and say, “I totally appreciate the fact that you took the time to come up with an offer but under the netting agreement I cannot stand in front of the judge and say I want to take this offer, when I know full well that I know it will not trigger the release price required under the netting agreement.”
It’s a fair thing to say that there’s a running dialogue with everybody. It never ceases to end. Everybody is trying to see if they can make a deal for themselves. There’s no one who ever wants to over-pay and everybody thinks they’re entitled to discount. The problem here is that a discount doesn’t work. There’s got to be a certain price they hit to release the netting agreement. But there are four or five different parties I’m talking to on a continual basis. I have just recently within the last day or so turned back one written offer. It’s a good offer but it is not sufficient to allow me to do what I have to do. Whether they come back, I don’t know, but I suspect they will since I think they lowballed me. That’s the kind of stuff that’s going on.
SeafoodSource: Are you still confident you’ll sell the assets at a price above the netting agreement’s threshold?
Brandt: The good news is the business is doing phenomenally well now the largest fishmeal producer in the world and probably the most efficient. Our market share in Peru approaches 24 percent of the anchovy market with our third-party purchases, so we’re the strongest player in the industry. The downside of that is, we’re pretty expensive to buy. You’re buying the rights to basically almost a quarter of Peru’s anchovy production either through third-party purchases or your own quota and that’s a lot to swallow.
There are still a variety of issues with respect to the mechanics of closing that will prove to be not insignificant in the closing. We’ll need sign-off from the officers of Pacific Andes and relevant stock market authorities, so that even if I get an acceptable offer and proceed to closing, it may take the better part of 120 days to close.
But I’m still confident we’ll get there. The truth of the matter is – and I echo what Rahm Emmanuel said when he announced he wasn’t going to run again to be mayor of Chicago, “This was the job of a lifetime, but it wasn’t meant to be the job for a lifetime.” That’s how I feel about this particular case. It’s time to finish it and be done – this should be squared away. I am thankfully actively talking to a number of buyers and we are beginning to exchange offers. It’s a problem structurally that the offers don’t get me to where I need to be, but it’s a start and it’s all bargaining. Whether you buy a new car or a used car, there’s always a bit of bargaining and that’s where we are.
