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KKR & Borealis Maritime Buy 9 Ships from Commerzbank

Zacks Equity Research

Kohlberg Kravis Roberts & Co. (KKR) announced the purchase of a shipping portfolio containing nine feeder container vessels in partnership with Borealis Maritime in a deal coordinated by the German bank Commerzbank AG (CRZBY). The financial terms of the deal were not divulged by the company.

Kohlberg Kravis will finance this deal through some of its managed funds and accounts as well as through its special situations fund, which provides capital to back up the long-term investment required in shipping assets.

The shipping fleet, originally financed by Commerzbank, was earlier under the possession of several German KG funds.

KKR & Borealis Maritime’s Affiliation

With the intention to invest in troubled shipping assets, Kohlberg Kravis entered into a joint venture with Borealis Maritime last year. This strategic alliance, known as Embarcadero Maritime, has bought total 27 vessels since its inception through 9 different transactions including the latest deal.

Moreover, Embarcadero Maritime’s $100 million investments to date comprise a mix of chemical tankers, feeder container vessels and small LPG vessels. This collaboration has helped both the companies to capitalize on the emerging opportunities triggered by a low phase prevalent in the shipping industry.

Kohlberg Kravis looks forward to increase investments in the distressed German shipping space by providing a viable way out to lenders – mainly German banks – who want to trim down their shipping portfolio.

Commerzbank’s Rationale Behind the Sale

This deal comes under Commerzbank’s plan to exit the shipping finance unit which it declared in June this year. The third biggest maritime lender in world intends to focus on other profitable businesses rather than the European shipping industry, which is struggling to meet operating costs. Moreover, the weakening container vessels unit constitutes a major portion of the KG funds as well as German shipping bank portfolios.

Additionally, financial institutions will have to conform to stricter regulations from the European Central Bank, which is expected to take over direct supervision of about 130 euro-area banks such as BNP Paribas SA (BNPQY) and National Bank of Greece SA (NBG) at the end of this year. This will aggravate the problem further by making loans costlier for the shipping companies.

Other Simultaneous Acquisition by KKR

Kohlberg Kravis is on the verge of taking over full control of German cutlery and automated coffee-machine maker WMF by acquiring more than 90% stake in the company.

Stakeholders of WMF tendered 74.7% of preference shares for €58 per share to Kohlberg Kravis. The buyout company, which already holds 72% of WMF, will become a major stakeholder of its target firm after considering the interests of WMF’s co-owner Andreas Weissenbacher – who has agreed to sell his stake to Kohlberg Kravis.

Further, Kohlberg Kravis looks ahead to delist WMF from the Frankfurt stock exchange and drive out the minority shareholders.

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