Business Muddles

P&R, a container investment giant, runs aground

Containers fall from the deck of damaged cargo ship MSC Chitra in the Arabian Sea off the Mumbai coast
Business model in need of righting. Source: Reuters

Thousands of investors face sleepless nights following one of Germany’s biggest-ever corporate meltdowns: the collapse of the P&R group, a global shipping-container manager with a flair for creative financing. Since its founding over four decades ago, the company, which has 1.3 million containers on its books, drew €3.5 billion ($4.3 billion) in business from 50,000 investors who, until recently, thought the business was rock-solid.

Gerhard Schick, a finance expert for the Green Party, said P&R could become “the biggest German investment scandal in recent history,” far surpassing the collapses of wind-farm operator Prokon and financial services firm Infinus.

Based in Grünwald near Munich, P&R sold new and used containers to investors, rented them back and offered to repurchase them after five years for 65 percent of the original value. The business model was simple, perhaps too much so. “I could work it out on my calculator,” remembered Sabine Schubert, a 74-year-old pensioner from the northern German city of Kiel.

Enamored by P&R’s prospects in a rapidly globalizing world, Ms. Schubert bought 10 containers for €23,000 in 2005. Her returns, a modest 3 to 5 percent a year, always arrived on time – that is, until P&R’s insolvency was announced on Monday. Belatedly, a horrified Ms. Schubert scoured the fine print of her contract and discovered that she not only risked losing all her money, but would be liable for her containers to the point of “private insolvency.” Following the failure of P&R, shipping lines or ports around the world could saddle her with storage or recycling costs, she found.

“It has yet to be investigated whether a Ponzi scheme was in operation and if there was a dependency on new investor capital.”

Peter Mattil, lawyer for banking and capital markets

P&R’s woes came as a huge surprise to investors who were attracted by realistic-sounding returns. Founded in 1975, P&R seemed to go from strength to strength. The company had 20,000 investors on its books in 1999, twice that many in 2005. By 2013, when P&R spectacularly succeeded in selling €1 billion worth of containers, the number of backers had risen to 62,000.

The money collected from investors was funnelled from Grünwald in Bavaria to the town of Zug in Switzerland, where Swiss unit P&R Equipment & Finance Corp. rented out the containers to international leasing companies like Textainer, Dong Fang or Seacube. The group is owned by founder Heinz Roth, who is now suspected of having hidden years of losses.

Two years ago, financial analyst Stefan Loipfinger warned that all was not well at P&R. He wrote in his blog, investmentcheck.de, that the group depended heavily on winning new business to keep running. After poring over the company’s prospectuses, he worked out that the monies paid out to investors in 2014, 2015 and 2016 were far higher than the rents collected from container leasing companies. P&R could only cover the shortfalls – over half a billion euros in just three years – from newly obtained investor capital, Mr. Loipfinger believes.

Over time, a business model which relies on new investors’ money to pay returns to existing investors is doomed to fail. Such pyramid or “Ponzi” schemes – named after a 1920 scam run by an Italo-American stamp dealer, Charles Ponzi – are also fraudulent. “It has yet to be investigated whether a Ponzi scheme was in operation and if there was a dependency on new investor capital coming in,” said Munich-based financial lawyer Peter Mattil, who is advising bruised investors.

20 p28 Container investments at P&R-01

Michael Jaffé, an insolvency administrator appointed by a Munich court, said P&R’s companies would continue to operate in the hopes of generating revenues to raise compensation. “Investors should act quickly to secure their property claims and assert their demands,” urged Klaus Nieding, head of the German private shareholders’ association DWS.

Apart from a growing glut of available containers, investors had other reasons to turn cautious on P&R after 2013, when new EU rules governing investment prospectuses forced companies to make fuller disclosures on potential dangers. But Mr. Schick, the Greens’ finance expert, complained that German law still doesn’t adequately shield investors in “gray” or unofficial markets for private investment which, among other things, don’t require feasibility reports by independent auditors. That can mean that investment risks – such as the ones discovered late by Ms. Schubert – are poorly signposted, or not at all.

Last year, P&R only sold €442 million worth of containers. Many five-year deals from 2013 are expiring this year, meaning P&R would need to find up to €650 million to buy the containers back. Observers suspect that’s the main reason P&R was destined to sink.

Ms. Schubert has no idea whether or when she’ll see her money back, but she’s taking her predicament with a dose of humor. “If nothing else works I may have to turn them into swimming pools,” she quipped.

Based in Berlin, Lars-Marten Nagel is a member of Handelsblatt’s investigative team. Gertrud Hussla, a financial correspondent for Handelsblatt in Düsseldorf, contributed to this article. To contact the authors: nagel@handelsblattgroup.com, hussla@handelsblatt.com

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