(Repeats story, first issued on Friday, to reach additional
clients. No change to text.)
* Klesch says in talks to buy 12 European refineries
* Former adviser to Gerald Ford, distressed debt “vulture”
* Says offered cash to keep plants open in Europe
* Builds foundation for oil trading in Geneva
By Emma Farge
GENEVA, April 27 (Reuters) – Many an investor might be
intimidated by the sight of their effigy, wrapped in their
national flag, burning outside the industrial plant they are
about to buy.
Not Gary Klesch.
This American investor, credited with bringing distressed
debt investing or “vulture capitalism” across the Atlantic, has
emerged as a leading bidder for the assets of insolvent European
refiner Petroplus and the potential saviour of
thousands of jobs.
Formerly an adviser to President Gerald Ford and a
bankruptcy consultant for the UK Treasury, Klesch built a
reputation in the City of London in the 1980s and 90s as a
staunch defender of investor rights and was involved in
high-profile corporate restructurings such as the Eurotunnel.
Noteworthy acquisitions included UK lingerie store
Knickerbox and French shoemaker Myrys.
Klesch, 65, has now switched his focus to commodity assets
such as refineries, shipping firms and aluminium smelters.
But unlike other investors who are targeting Asian countries
like China to increase exposure to booming demand, Klesch is
targeting European refining – an industry seen by many as doomed
by economic stagnation, rising competition from cleaner fuels
like natural gas and tough new environmental restrictions.
Oil demand in Europe is forecast to average 14.1 million
barrels a day this year, versus 15.3 million bpd a decade ago,
according to the International Energy Agency. A profit margin
crunch has pushed refinery owners to sell, often at knock-down
prices.
Klesch arrived unexpectedly on the European refining scene
in 2010 when he announced the purchase of Shell’s Heide
refinery in Germany.
As well as the three Petroplus plants in Britain (Coryton),
France (Petit Couronne) and Germany (Ingolstadt), Klesch told
Reuters in an interview that he is in negotiations to buy a
further nine European plants.
“A bankruptcy investor is a born contrarian,” he said,
raising his voice over the din of a posh Geneva brasserie.
“He is saying that the other guys have gotten it wrong. A
problem is just an opportunity spelt differently.”
OIL AND POLITICS
As the effigy-burning incident outside Italian oil firm
Eni’s Livorno refinery three years ago reveals, this
orphan from Cleveland, Ohio has not always been popular with
Europe’s workers.
His reputation for dealing directly with controversial
leaders, such as his 2007 talks with Libya’s Muammar Gaddafi
culminating in the signing of an $8 billion contract for a
refinery near Benghazi, may not have helped.
In February, leftist French presidential candidate Jean-Luc
M (c)lenchon voiced the feelings of some workers when he called
Klesch a “vampire” in a speech to workers at a plant Klesch
recently acquired from French chemicals group Arkema.
The French have another reason to resent his recent bid for
the Petroplus Petit Couronne refinery in Upper Normandy. His
1997 purchase of French shoemaker Myrys ended in the plant’s
closure and hundreds of redundancies.
But as one of the main bidders for the Petroplus assets,
Klesch appears to be more popular with ruling politicians who
see him as key to protecting jobs and strengthening energy
security in a region already facing major supply challenges due
to its own embargo on Iranian crude supplies.
Klesch, silver hair combed neatly and dressed in a grey suit
with lavender trim, said with a hint of a smile: “I get a lot of
invitations these days.”
Industry sources say that President Nicolas Sarkozy,
battling for re-election, has been directly involved in
orchestrating talks with Klesch and keeping Petit Couronne
running through a deal brokered with Shell.
French politicians will need no reminder of how sensitive
workers are to plant closures after Total’s move to close its
Dunkirk refinery triggered a two-week strike in solidarity at
all of the major’s French refineries.
And in Britain, panic buying of gasoline broke out in
January as motorists feared disruption to supplies when the
Petroplus Coryton plant came under threat.
In a sign of the desperation of some European governments,
Klesch told Reuters that in at least one instance, he has been
offered money to “purchase” a plant, without giving details.
BUILDING AN EMPIRE
Resident in Geneva since 2009, Klesch has been quietly
building the foundation of a commodities refining and trading
house that has registered five companies in the past three
years, corporate registration documents showed.
These include Klesch and Company, Klesch Petroleum Overseas
Investments and three separate trading firms including SOTASSA
(oil), Klesch Steel Trading and Panther Trading (aluminium).
The exact size of his trading operations is unclear but
SOTASSA and Panther alone employ around 50 people, including top
executives like Sh ell’s Tom Rowe an d former Barclays energy
trader Clemens Mair.
Sporting a Geneva-made Patek Phillipe watch and with a house
in the wealthy lakeside commune of Cologny near the residence of
private banking family Pictet, Klesch appears at home among
Swiss millionaires.
Asked how much he was worth, Klesch said: “I’m worth enough
to not worry.”
His companies are headquartered on Rue du Rhone, an address
fast becoming associated with commodities dealing, in a city
that buys and sells about a third of the world’s traded oil.
Some industry sources think that if his Petroplus purchases
go through, SOTASSA could become a significant player in the
European oil market. It is now mostly focused on managing supply
contracts for the Heide refinery, traders say.
“I have the impression they are building towards something
and they want to go solo on trading,” said an industry source
who has done business with SOTASSA.
But others are sceptical that Klesch has the know-how and
the financing to succeed in the commodities trading arena, an
industry dominated by giants like Glencore and Vitol
and increasingly characterised by slim margins.
Klesch said he is “happy with” his decision to award
Glencore the contract to supply crude to the Heide refinery,
although one veteran Geneva oil trader said it was “like having
a dog guard your sausage.”
Another challenge could be daily financing for the
multi-million dollar daily transactions required to run
refineries at a time when many banks are struggling to raise
dollar financing.
Klesch says his strategy for making refineries profitable
again was to be flexible and focus on maximising profits at
individual plants.
“Shell was looking at its assets and thinking about how it
fits i nto a portfolio of 22. I say to the traders: do whatever
you want but just optimise this asset,” he said.
And while he acknowledged that giant refineries being built
in India were changing trade flows, he said fuels will still
have to be produced locally in Europe to match the quality
specifications of each market.
VULTURE INVESTOR?
Klesch’s expansion plans may be subject to more criticism,
especially if socialist candidate Francois Hollande wins the
French election run-off against Sarkozy May 6.
But a lack of alternative investors could force the French
to take a chance on one of the only companies willing to bet on
the struggling sector.
Fresh challenges like the integration of refiners into the
European Union carbon emissions trading system from 2013 could
also act as a further deterrent to refinery buyers.
“These are cash-guzzling plants. Nobody is really bidding
for these things and the only ones who have been semi-honest
about that is the French,” said Klesch, with characteristic
forthrightness.
Administrators for the UK’s Coryton and Germany’s Ingolstadt
have said the plants have attracted wide interest.
Some speculate that trading houses, also among the bidders
for the Petroplus assets and with little previous experience in
refining, may eventually close the plants and convert them to
storage units.
Klesch’s track record in keeping Heide open may give him the
edge over other contenders such as trading house Vitol and
Russian investment firm Fund Energy, a fund founded by former
Russian energy minister Igor Yusufov.
“People used to call me a vulture and much worse,” said
Klesch.
“Now I’ve noticed that the term is not used so much. They
realise they need the vultures.”
(Additional reporting by Tom Miles; Editing by Richard Mably
and Alison Birrane)
