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Gagik Apkarian: How and why we acquired Frigoglass,
and Greece’s remarkable recovery
The Managing Director of Tetrad Capital Partners and Chairman of the Frigoglass Group BoD
illuminates the course that has brought the Bondholders at the helm of the historic company, and
reveals the new strategic goals that have been set.
He is a foreign investor with more than 10 years of investment presence in Greece, yet has managed to fly under the radar of business reporting. Tetrad Capital Partners, however, has now atracted atention as it spearheaded the Bondholders’ endeavor to acquire the shareholding control of Frigoglass, as the company couldn’t service its outstanding financial obligations. Following a long process of capital restructuring the David-Leventis Group retains 15% in the new company, with the Bondholders having acquired the remaining majority stake and drafting its new strategy.
Gagik Apkarian, Managing Director of Tetrad Capital Partners and Chairman of the Frigoglass Group BoD illuminates the course that has brought the Bondholders at the helm of the historic company, reveals the new strategic goals that have been set, and explains the prerequisites for Greece to continue its impressive financial recovery.
Q: For starters, I would like you to provide us with a context of the events that led to the acquisition of Frigoglass Group by the Bondholders. When and why did you take the decision?
A: Tetrad Capital Partners has strong relationships with many of the world’s leading investment funds and commercial banks. It came to our atention that some of these funds were examining Frigoglass independently, so we decided to collaborate and bring together our respective prospects and available resources.
It is important to note that our interest in Frigoglass predated the transaction by some time, but we had two main concerns: the Group’s balance sheet and how quickly it would recover from the fire incident at its largest plant in Romania. We subsequently kept the company high on our watch list, and continued monitoring developments.
The war in Ukraine was the game-changer. The Group was already in duress due to the incident in Romania and was using its Russian plant as a backup production facility to cover demand in the European market. The war’s initial stages however led to dramatic increases in transport costs for finished and semi-finished goods from Russia to Romania, and the rest of Europe. That, plus the imposition of sanctions, eliminated the option of EU countries using production facilities in Russia. This, in turn, meant serious balance sheet distress for the company and led to the ultimate bond event of default.
The investment firms with which we were collaborating had significant positions in those bonds. On a business and strategic level our investment thesis remained firm. There was, however, an urgent need to address the company’s liquidity and leverage, while it was rebuilding its Romanian plant. We had every confidence in the prospects of Frigoglass, but also had an immediate issue to address.
Any solution required the infusion of liquidity to support the company’s efforts to meet its commitments. Frigoglass was a listed company, which called for a cautious approach to mitigate any impact from transactions with shareholders.
Ultimately, the Bondholders formed a commitee that required coordination. The sanctions imposed on Russia had implications on the deal structure, and there were multiple jurisdictional elements across Europe and Africa that had to be carefully managed. Addressing all these issues demanded significant resources and careful judgment. And despite Tetrad carrying extensive experience in numerous restructurings, the dynamics around the Frigoglass debt restructuring process were complex, and had to be handled with the utmost care.
Q: Why do you believe you will succeed where previous shareholders have failed?
A: Over the past several years the company has faced an unfortunate series of events that put enormous strain on both its management and balance sheet. That said, we are now in a completely different place altogether. The reconstruction of the Romanian plant has been completed and it now operates much more efficiently than the facility it replaced. Furthermore, the India production facility is growing at a rapid pace, the Indonesia plant is also developing, and South African operations are progressing well. As for Betaglass, despite the Nigerian market’s internal dynamics and issues, it continues performing well and we’re assessing various options to continue its growth trajectory.
Financially, the Group has sufficient liquidity and deleverages, as a result of the recapitalization and restructuring transaction. The Bondholders are commited to the company’s success and Tetrad dedicates time and resources, while also leveraging its extensive experience and network, to drive the company’s transformation plan in close collaboration with the management team.
Q: So, what are your goals for the "new" Frigoglass?
A: Right after the recapitalization and restructuring transaction was concluded in late April, we began implementing a very ambitious transformation plan in collaboration with the management team. We are fortunate to have the support of our customers who are also commited to the success of Frigoglass, as they consider the company an invaluable partner and critical part of their supply chain.
In terms of ICM business, the company carries the sector’s leading product portfolio in terms of design,quality and energy efficiency – far superior to its peers. Frigoglass has also developed strong relationships with the world’s top companies and brands in the beverage and drinks sector. Companies that are hard to penetrate, given their focus on the quality and reliability of their suppliers. Frigoglass Group operates a global manufacturing network with five facilities, spanning both the developed European and the highgrowth emerging markets of India, East Asia and Africa. The company is thus enabled to manufacture its products close to the markets they will be released, reducing logistics costs and simplifying the supply chain process. And lastly, Frigoglass is run by a management team that is well-regarded in the industry.
The company’s strategy going forward is to leverage its new state-of-the art plant in Romania to manufacture the most advanced coolers in the world, primarily targeting European customers. In addition, Frigoglass is www.frigoglass.com optimizing its India facility, which is seting new production records quarter after quarter. The Group will also continue growing its Indonesia facility, as it continues partnering with local customers to manufacture coolers that are superior to competitors in the East Asian markets. Furthermore, the South African plant is also being developed to service the dynamic African markets. And at the same time, we focus on further growing “Frigoserve”, the Asset Performance Services division of Frigoglass that complements the hardware business
Q: What role does the new plant in Timisoara play in your strategy?
A: The Timis facility has a long tradition in the history of Frigoglass, serving as the main production facility for European operations for almost three decades. The new plant is the cornerstone of the Group’s future strategy for the production of a wide range of innovative and energy efficient products. Moreover, it will produce the company’s most sales-effective and energy efficient cooler range thus far. These new coolers will have a B energy rating, which ensures energy savings of at least 40%. The Timis plant will also help meet market demands from Western and Central Europe, complementing the Group’s other ICM manufacturing facilities that efficiently serve our strategic partners that are active in the beverage and drinks sector worldwide.
Q: What is the plan for the glass botle production activity in Nigeria?
A: Betaglass is a well-managed and high-performing business, active in the largest economy of the African continent. It boasts an enviable roster of customers, three exceptionally performing furnaces, three production facilities, and a highly recognizable brand. It is also one of the most significant employers in Lagos and the Delta region. We plan to build on these advantages, to further grow the business and continue responding to the ever-evolving needs of our customers for new glass containers, different colors and shapes. At the same time, we are systematically developing an exports strategy to leverage the devaluation of the local Nigerian currency.
Q: Is there a timeline for the divestment of Bondholders’ investment funds from Frigoglass?
A: There was the wrongful impression that no sooner would the ink dry from the restructuring than a sale process would commence. We have made it crystal clear that such an impression is unfounded. The investors of Frigoglass are highly experienced and also very rational, acknowledging the fiduciary duty they have to their Limited Partners to maximize the value of their investments. Hence, there is no urgency or timeline for divestment. There is a clear transformation plan in place that will take Frigoglass to the next level in every way – operationally, financially and with regard to its market position. And all this will contribute to maximizing the company’s value.
Q:Will Frigoglass remain listed on the Stock Exchange?
A: Frigoglass is a private entity held by a UK holding company. All the restructured debt is at that level. The Bondholders own 85% of that entity’s equity and the old listed SAIC owns the remaining 15%. That 15% minority stake is listed on the Athens stock exchange. SAIC has its own Board of Directors and fiduciary duty to its shareholders. The SAIC BoD publishes its own financials, provides updates to its own shareholders, and holds its own Annual General Meeting. We don't have a view on SAIC.
Greece has made an astonishing turnaround
Q: In your capacity as founder of Tetrad Capital Partners, how do you evaluate Greece as an investment destination? What improvements are needed?
A: Tetrad has been active in Greece for 10 years, starting in 2013 during the global financial crisis. Given the challenges that Greece was facing at the time, our focus was on distress situations – i.e., the banking, hospitality, and leisure sectors. As the economy stabilized, we gradually shifted our focus to companies with growth opportunities. In 2017 we started our collaboration with York Capital in Terna Energy and GEK Terna. Today both companies are unrecognizable compared to their 2017 incarnations, in terms of scale, market position, and value. And that is a tribute primarily to the leadership of George Peristeris, but also the superb execution of the business plan by the management teams of both companies.
At a macro perspective, we must acknowledge that Greece’s turnaround trajectory has been astonishing these past years. There were many reasons for this successful sovereign turnaround. One undisputed factor was electing a government that has stabilized the country, implemented orthodox fiscal policies, restructured key elements of the government apparatus and, in due course, regained the trust of the investment community. The recent return of Greece to investment grade by S&P, after an entire decade no less, is an indication of the Greek economy’s prospects.
Βold structural reforms and business-friendly policies are needed, however, for Greece to continue on this trajectory. The long-term challenge for the Greek economy is to maintain its growth, despite the fact many countries in Europe are on the brink of recession; to increase competitiveness on an international level; and to continue reducing its public debt to GDP ratio.Download the file