Every year GTR receives hundreds of Best Deals submissions, and every year we try to reward the trade, export, commodity and project finance transactions that represent the finest of this industry, in terms of innovation, social purpose, clever risk mitigation and, most importantly, continued support to trade.
Congratulations to all the winners!
Yes Bank innovates with blockchain solution
- Borrower: Vendors/suppliers of Bajaj Electricals
- Amount: INR1mn
- Bank: Yes Bank
- Date signed: December 21
2016 will be remembered as the year blockchain technology transcended the bluster to provide a viable application in trade finance. After a number of high-profile fraud scandals, banks have been scrambling for ways to make trade finance transactions less open to manipulation. And at a time at which elements of consumer banking are available at the click of a button, blockchain allows trade and corporate banking to become streamlined too.
Using Hyperledger Fabric supported by IBM, Yes Bank worked with a retail client, Bajaj Electricals, to develop a blockchain-based solution that is both secure and efficient. The usual course of action in this domestic trading relationship was for the supplier to raise an invoice, post-supply of goods, which would be accepted by the buyer once the physical documents (bills of exchange, accepted invoices, transport documentation and goods for payment confirmation) had been received. The supplier would then hand these documents to a branch of Yes Bank, where they would be verified and an invoice discounting facility disbursed.
By using Hyperledger, the information and data is delivered in real time and online, allowing for a paperless, cashless transaction without any requirement for post-transaction reconciliation. A transaction which previously took four days is now instantaneous. To date, Bajaj Electrical has enrolled between 40 and 50 vendors onto the solution and Yes Bank feels there is real capacity to upscale and roll out further.
Yes Bank is working towards applying blockchain technology to other areas of the trade cycle. The bank’s spokesperson says that they have put in place a detailed roadmap of how it can be used to digitise the collection of letters of credit, foreign remittances and relationships with partner and correspondent banks in the trade space.
The bank tells GTR: “This platform is robust and scalable and can be replicated on a larger scale to cover financial supply chain solutions to corporate buyers, medium-sized and SMEs. Blockchain has immense potential to revolutionise trade finance – it can be a game-changer in the trade finance space.”
BAM banks on RMB for future Africa growth
- Borrower: BAM International
- Amount: US$20mn
- Lenders: Rand Merchant Bank (RMB, a division of FirstRand Bank), First National Ghana, First National Tanzania
- Tenor: Reviewed annually with performance bonds issued up to four years
- Date signed: August 5
BAM International has been carrying out construction projects in Africa since the 1950s. But it was only last year that it secured – for the first time – a financing facility from an African bank across multiple jurisdictions.
The client was new to Rand Merchant Bank (RMB) and, following initial contact with BAM International in Tanzania, it implemented the US$20mn performance bond facility covering Tanzania, Ghana and Kenya, jurisdictions in which both BAM International and RMB operate. Performance bonds relate to any demand guarantees, standby letters of credit, surety bonds and counter indemnities that BAM International needs to issue.
The bank also implemented a master risk participation agreement (MRPA) with its subsidiaries, initially in Tanzania – Ghana is in the process of being finalised – in order to provide the subsidiaries with the required group support to exceed in-country limitations, should BAM International require it.
“Via support from South Africa we can increase the limits of the exposure from an in-country balance sheet perspective – which makes it easier for issuances,” says Linda Main, Africa trade and working capital transactor at RMB.
What’s more, this saves critical time when submitting for tenders and bid bonds, she explains. Instead of hard copy documents being couriered from South Africa, these can be delivered directly within each of the countries, because it is the subsidiaries that are issuing the performance bonds. To date, the bank has issued various bonds for projects in Tanzania, including the refurbishment of the Kilimanjaro airport, the construction of a new terminal at Julius Neyere International Airport and the improvement and extension of the port at Dar es Salaam.
As the issuance of bonds in Kenya and Ghana are subject to BAM International winning new construction tenders in these countries, none had been provided as GTR went to press.
Main lists the difficulty of liaising with three legal counsels in three jurisdictions as one of the challenges faced in closing the deal.
What a difference a name makes for Cofco Agri
- Borrower: Cofco Agri
- Amount: US$2.6bn
- Facility and documentation agent: ABN Amro
- Coordinators: ABN Amro, Bank of China
- Senior bookrunning MLAs: ABN Amro, Agricultural Bank of China, Bank of China, China Construction Bank, China Development Bank, China Merchants Bank, ICBC
- Bookrunning MLAs: Bank of America Merrill Lynch, BNP Paribas, CBA, DBS, ING, NBAD, Rabobank, Société Générale, SMBC, UOB, Westpac
- MLAs: BBVA, Crédit Agricole, DBS, National Australia Bank
- Law firms: Clifford Chance; Linklaters
- Tenor: 1 and 3-year RCFs; 3-year term loan
Date signed: September 20
Around the end of 2015, it was announced that Noble Group was going to sell its remaining stake in its agricultural commodities trading unit, Noble Agri, to Chinese conglomerate Cofco. The US$750mn deal went through in March 2016, with Cofco confident that it could revive the fortunes of what was previously one of the most illustrious brands in commodity trading. Noble had come under scrutiny for alleged accountancy malpractice and the group’s share price plummeted 60% in 12 months, while its visits to the debt markets, once frequent, had become less common and more pricey.
What a difference a few months (and a change of ownership) makes. Within half a year of purchasing Noble Agri and rebranding it as Cofco Agri, credit facilities worth US$2.6bn had been signed with a diverse range of banks – 100% oversubscribed. The finance was guaranteed by the Cofco Group, which shows that with a good backer, the refinancing market can be as generous as ever to creditworthy traders. So great was demand from the banking sector, Cofco Agri had to restrict the final amount and scale back lenders’ commitments.
The facility brought new lenders to the table and leveraged Cofco’s relationships with the Chinese banks to lend the deal an international flavour and make it one of the largest of the year. “The success of this transaction constitutes a vote of confidence that our strategy is on target,” says Patrick Yu, president of Cofco. “The support of such strong partners is critical to our ability to realise our vision of a global and integrated agribusiness.”
Deutsche and ING go big for Dongying
- Borrower: Fangyuan Group
- Amount: US$385mn
- Co-MLAs and bookrunners: Deutsche Bank, ING
- Security agent: DB Trustees
- Lenders: ABN Amro, Banca Monte dei Paschi di Siena, China CITIC Bank, First Gulf Bank, Korea Development Bank, ICICI Bank, Nanyang Commercial Bank, Société Générale, SMBC
- Law firm: Simmons & Simmons
- Tenor: 1 year
- Date signed: September 22
It’s been a tough few years for the metals sectors, with much of the difficulty stemming from China’s shifting economic policies. As the government tries to steer the country towards a consumption-based model at the expense of the investment-led model of recent decades, industrial metals have been a major victim. There’s a massive surplus of steel and iron ore; nickel prices plummeted and copper has had a rough time too (although its widespread use in electrifying China’s rapidly expanding urban centres means it never hit the lows of the aforementioned metals).
Not the ideal time for a copper company to go to market to raise funds, you might think. Fangyuan Group, a refiner and producer of copper, proved that thesis wrong. The owner of Dongying refineries tapped the banking sector for a huge, oversubscribed pre-payment facility that happens to be the largest syndicated loan in the history of China’s copper sector. The banks involved leveraged Fangyuan’s allotted short-term foreign debt quota, allowed under the country’s new cross-border foreign currency cash-pooling scheme.
Fangyuan Group’s CEO Liu Xiaohui says of completing the deal, which is the company’s third syndicated loan in successive years: “Deutsche Bank and ING’s outstanding structuring and syndications capabilities combined with their proven track record gave us the confidence that they would help us raise funding in an innovative way. This successful collaboration between the banks and Fangyuan Group takes into consideration our actual needs in terms of supply, production and consumption and, therefore, is very much aligned with the requirements of our asset conversion cycle. As such, it is a perfect illustration of the benefits attributed to structured finance facilities for the development of productive enterprises.”
Digging deep for Ghana’s gold
- Borrower: Gold Fields Ghana as obligor, Dints International as seller
- Amount: US$60mn+ over the first 2 years
- Lender: Investec
- ECA: UKEF
- Law firm: Sullivan & Worcester
- ECA advisor to Dints International: GKB Ventures
- Tenor: 2 years with option to extend on a year-by-year basis
- Date signed: April 28
This impressive facility, which seeks to shake up the supply chains of the mining industry, sees UK SME Dints International, a specialist equipment supplier, winning a major contract to provide inventory procurement and management to an African mining company – in doing so creating an opportunity for other SMEs to supply to the company.
The facility was financed by Investec, with full backing from UK Export Finance (UKEF). It is a tailor-made structure to support Dints’ business model to allow it to offer extended credit terms to its client, Ghana Gold Fields (GFGL).
Dints signed a unique supply contract (a vendor managed inventory product, or VMI) with the Ghanaian gold producer that involves Dints providing full operational expenditure (opex) procurement and management from multiple original equipment manufacturers in a single, consolidated process.
“We operate a warehouse on GFGL’s mine site, stocked with goods and parts that they can access whenever they need to,” explains Freddie Tucker, Dints’ trade and structured finance director. “Using our inventory management expertise, we make sure the stock in there is sufficient for whatever they want, but without overstocking it so they end up with too much cash tied up in parts.”
With this model in place, Dints has been able to introduce millions of pounds-worth of potential sales to a great number of suppliers that otherwise would not have been able to sell to the Ghanaian company.
“At present, Caterpillar can only provide Caterpillar, JCB can only provide JCB, and they can provide these services because they are massive companies with big balance sheets, that can extend the payment terms to the mines,” Tucker explains. “What we can do, with the support of UKEF, is also extend these payment terms, but because we’re independent, we can offer a range of equipment producers.”
Bringing multiple brands together under one management fee has brought about a cheaper and more streamlined process for GFGL, and usurps the model that’s currently in place in this industry.
Funding Zambia’s critical infrastructure needs
- Borrower: Ministry of finance, government of Zambia
- Amount: US$449.3mn
- MLAs (Sinosure facility): Bank of China, Standard Chartered
- MLA (commercial facility): Standard Chartered
- ECA: Sinosure
- Law firms: Corpus Legal Practitioners Zambia; Dentons China; Dentons UK
- Tenor: 15 years and 4 years
- Date signed: July 11
With the Zambian economy having suffered significantly from power shortages and record-low copper prices, funding from overseas has become increasingly important for the government to uphold its spending on the country’s critical infrastructure needs.
The Zambian government has pushed forward a range of high-priority healthcare and clean drinking water projects, including the Kafulafuta water supply project, which is set to improve water quality and quantity for residents of three districts in the country, as well as create 3,000 jobs.
The project, which involves the construction of a reservoir dam at Kafulafuta, a water intake pumping station and a booster pump station and water pipeline, will be carried out by China National Complete Engineering Corporation.
It is made possible with the backing of Bank of China, China’s export credit agency Sinosure and Standard Chartered, which in July 2016 concluded two facilities worth US$449.3mn for the Zambian ministry of finance.
The two facilities include a 15-year US$382mn syndicated loan issued by Bank of China (US$332mn) and Standard Chartered (US$50mn). Sinosure is providing political and commercial risk guarantee for 95% of the loan.
Standard Chartered also provided a US$67.3mn secured syndicated commercial term loan facility with a four-year tenor, covering the remainder of the EPC contract.
The two facilities combined were able to meet the borrower’s need for financing of 100% of the project costs. The deal submissions emphasise the speed at which
the facilities were concluded – in less than a month – and at a time of great volatility in the Zambia financial markets.
“As Zambia’s economy struggles, the importance of Sinosure’s insurance is greater than ever, giving the ministry of finance the ability to repay the loan over a 15-year period, limiting the lenders’ risk and increasing their willingness to lend over an extended duration,” notes Bank of China.
In 2016, Standard Chartered further provided US$55mn-worth of commercial term loans for two other healthcare and clean water projects.
Commerzbank breaks the mould with Indonesian refinery financing
- Borrower: PT Krakatau Steel
- Amount: US$260mn
- MLA: Commerzbank
- Participating bank: AKA Ausfuhrkredit-Gesellschaft
- ECA: Euler Hermes
- Law firms: Allen & Overy; Hadiputranto, Hadinoto & Partners; Hiswara Bunjamin & Tandjung
- Tenor: 11 years; repayment in 16 equal half-yearly instalments
- Date signed: July 29
You can read elsewhere in this magazine about the difficult business environment in Indonesia. This is not a new thing: financiers and investors are often frightened off by government regulation which changes on a regular basis. No sector bears the scars of this more than commodities, which have been hit with numerous high-profile rule changes in recent years. One law, introduced in 2015, requires exporters of key commodities (coal, palm oil and palm-kernel oil, oil and gas and minerals, including tin) to use letters of credit in their shipments, ostensibly as a means of keeping an accurate track of exports.
But of even higher profile has been the farcical flip-flop on mineral exports outlined in our GTR Asia section. The general view is that the law has been anathema to international investment, and so the decision to reverse the mineral ban was no real surprise. That Commerzbank managed to orchestrate such a large deal funding a hot strip mill in the country’s metals sector is commendable – that they did it in a sector as volatile as steel is extraordinary.
Steel prices have been hammered due to falling demand in China and, notably, the borrower on this deal has suffered an extremely difficult few years – another reason to praise this deal: few European banks have appetite for this sort of transaction in Asia. While Stefan Kilp, a senior vice-president in Commerzbank’s export finance team, is quick to praise the role of Euler Hermes in the transaction, the borrower had strong praise for the bank itself.
“I was a banker, I used to work for a foreign bank in Indonesia and my job was providing export credit. I have been dealing with this and am okay with the process. But I know that the process is not easy,” president director of Krakatau Steel, Pak Sukandar, tells GTR. “So I am aware of the challenges involved. I appreciate the job that is done by Commerzbank. The bank has been with SMS [the exporter] since the bidding process. I understand that financing is not easy, given the steel industry is having difficulties, it is very challenging and they did a very good job.”
Helping hand to Middle East refugee crisis
- Borrower: Kurdistan regional government of Iraq
- Amount: US$34.8mn
- MLA: JP Morgan
- ECA: UKEF
- Law firms: Menas Associates; Sullivan & Worcester
- Date signed: December 8
In the face of an ongoing refugee crisis and a shortage of clean drinking water, the Kurdistan regional government of Iraq has embarked on a landmark US$1.2bn-worth water and wastewater treatment infrastructure project in the cities of Erbil and Silaimani.
The projects are being carried out by UK water engineering company Biwater and include the construction of an advanced 600,000 m3/day water treatment plant in Erbil, as well as upgrades to a wastewater treatment plant and the construction of sludge treatment facilities in Silaimani.
The initial phase of the project has been made possible with the backing of a US$34.8mn direct lending facility provided by UK Export Finance (UKEF), which becomes the first export credit agency to provide a loan to a regional government in Iraq. JP Morgan acted as the mandated lead arranger.
The facility will finance the preliminary scoping phase, which will cover social and environmental impact assessments, relevant site surveys and detailed designs, and is expected to take between six and 12 months.
Rapid population growth and a rising number of internally displaced people have increased the demand on existing resources, contributing to a shortage of water in the region. The financing is essential for the regional government to meet the urgent need to ease the pressures on existing water systems and reduce the region’s reliance on groundwater reserves, as well as improve the daily lives of its citizens.
The deal doesn’t just have tremendous, long-lasting environmental and humanitarian implications: being the first loan entered into by the Kurdistan regional government under its debt law, it sets a precedent for future borrowing and demonstrates that the regional government is able to borrow in its own name. It is hoped that the initial loan will pave the way for attracting finance for the main project, which, due to its large size, will be stage-financed.
Mega plastics deal amid low oil prices
- Borrower: Orpic Plastics
- Amount: US$3.8bn
- MLAs: Bank ABC, Bank Dhofar, Bank Muscat, BNP Paribas, BTMU, Cassa Depositi e Prestiti, CIC, Crédit Agricole, Export Development Canada, HSBC, ING, JP Morgan, KfW-Ipex Bank, Korea Development Bank, National Commercial Bank, Natixis, SMBC, Société Générale, UniCredit
- ECAs/insurers: Atradius, Euler Hermes, Kexim, K-Sure, Sace, UKEF
- Law firms: Allen & Overy; White & Case
- Tenor: Commercial facility: 4 years availability + 11 years repayment. ECA facilities: 4 years availability + 12 years repayment
- Date signed: March 3
Despite the low oil price environment, Liwa Plastics Industries Complex (LPIC), a fully-integrated olefin petrochemical complex in Oman, was able to attract six major European and Asian ECAs and 19 international, regional and local lenders in what is the largest project financing ever signed in the country.
The facility will support a landmark US$6.4bn project, which includes a natural gas processing plant in central Oman, a 300km gas pipeline to the complex site, a mixed-feed ethylene stream cracker unit and downstream polymer plants.
Total project costs are split into four different EPC contracts and involve US$3.8bn of debt provided by ECA-covered facilities, ECA direct lending and commercial facilities. ECA funding accounts for US$2.38bn, while commercial banks are contributing US$1.42bn.
The submissions for this deal highlight the facility’s strong risk profile, with significant sovereign support from the Omani government and ECAs, its strong economic rationale and a solid financing structure supported by significant equity investments, which enabled LPIC to draw international and local support despite facing complex macro-economic and structural challenges in view of fluctuating commodity prices.
“Despite a challenging environment when the deal was launched, the Orpic-LPIC project succeeded in raising the largest-ever project financing attempted in the sultanate. Indeed, polymer products are highly correlated with oil prices and hence the risk profile of the transaction was extremely sensitive to such rapid declines in oil prices,” says Emmanuel Gillet-Lagarde, global head of infrastructure and projects at Natixis.
LPIC is the largest of three strategic growth projects undertaken by Orpic Plastics, the country’s largest integrated refinery and petrochemical company (owned by the Sultanate of Oman and Oman Oil Company).
The project will enable Oman for the first time to produce polyethylene and increase the production of polypropylene, thus supporting the government’s plans to diversify its economy away from the production and export of crude oil towards higher-value downstream industries.
US and Korea unite for ground-breaking petrochemical project
- Borrower: Lotte Chemical USA Corporation
- Amount: US$1.6bn
- MLAs and bookrunners: BBVA, Crédit Agricole, HSBC, ING, Mizuho, SMBC
- Lead arranger: BTMU
- Arranger: NongHyup Bank
- ECAs: Kexim, K-Sure
- Law firms: Linklaters; Milbank, Tweed, Hadley & McCloy
- Tenor: 10 years
- Date signed: October 31
This winner first stood out because of its size: US$1.594bn was provided to Lotte Chemicals USA (a subsidiary of South Korea’s Lotte Chemical), contributing to a US$3bn petrochemical project in Lake Charles, Louisiana, with the rest being funded by equity.
But looking more closely, the GTR team found many other merits to the deal. For one, it brings together eight lenders and two ECAs from a number of jurisdictions, and is split between four tranches: US$600mn covered by K-Sure, US$300mn covered by Kexim, US$300mn of direct funding from Kexim and US$394mn of uncovered commercial bank funding.
The complexity of the structure is reflected in how long it took to close the deal – over two years from first market sounding, and 10 months for the documentation process to be completed.
In this time, Korea introduced a graft act against corruption, which had to be implemented in the documentation. Lenders also mention various changes in the bank syndication group as some of the main challenges faced on this deal.
The project in question is laudable: an ethane cracker plant with an ethylene output capacity of approximately 1 million tonnes annually, it will be the largest facility in the US for the production (and mostly export) of monoethylene glycol, an important ingredient in the making of paper, textile fibres, latex paints, asphalt, resins, antifreeze, coolants and adhesives.
It is also the first project of such large scale by a Korean petrochemical company in the US, and was undertaken as part of a joint venture between Lotte Chemical and Axiall Corporation.
Louisiana Economic Development points out that the project will create 215 new direct jobs and an estimated 1,892 indirect jobs in the state.
ECAs back world’s longest underwater interconnector cable
- Borrower: National Grid North America
- Amount: US$752mn
- Sole structuring bank, MLA and lender (Sace and EKN facilities): BNP Paribas
- MLAs and lenders (Sace facility): BTMU, HSBC
- Lender (EKN facility): SEK
- ECAs: EKN, Sace
- Law firms: Clifford Chance; Linklaters
- Tenor: 11 years (6 years availability period plus 5 years repayment period)
- Date signed: EKN: January 1; Sace: April 4
The National Grid North America deal saw US$752mn raised in senior unsecured term loans for work related to the North Sea Link project – the world’s longest underwater interconnector cable.
The facilities consist of a US$233mn EKN-guaranteed export credit and US$519mn Sace-backed export credit. The latter is accompanied by interest rate stabilisation from export support company Simest.
Backed by the Italian export credit agency Sace, the loan was structured by BNP Paribas as the sole structuring agent, with HSBC and BTMU as mandated lead arrangers and lenders. The EKN-backed loan, which was also structured by BNP Paribas, is being fully funded by Swedish ECA SEK.
The facilities, which represent the largest financing for European power transmission to date, will support National Grid’s share of engineering, procurement and construction contracts with cable company Prysmian and engineering and technology company ABB.
The structure of the deal not only provides finance throughout the construction period, but also minimises the cost of carry due to the drawdown and repayment profile.
The North Sea Link project, which has a total value of €2bn, involves the construction of a subsea interconnector between Norway and the UK. The project partners, Norwegian utility Statnett and National Grid North Sea Link, plan to use the connection to increase production and use of renewable energy on both sides, making the project functional to meeting COP21 and national emissions targets. It will increase the energy options and supply flexibility of both the Norwegian and UK power networks.
The cable, which is scheduled for completion in 2021, will have a capacity of 1,400MW and will extend over 730km, making it the longest piece of infrastructure of its kind in the world.
Barclays makes blockchain breakthrough
- Borrower: Seychelles Trading Company
- Amount: €110,000
- Bank: Barclays
- Tenor: 90 days
- Date signed: September 6
In this transaction, Barclays conducted the world’s first live trade deal using blockchain technology, positioning itself as a leader in the race for distributed ledger technology (DLT) innovation.
The deal originated in Ireland with dairy exporter Ornua, which shipped butter and cheese to the Seychelles. Although the letter of credit (LC) was done in the traditional way, the transaction involved the cryptographic signing of trade documentation digitally, using a DLT platform developed by Wave – one of the beneficiaries of the Barclays Accelerator programme.
According to Barclays, it took just under four hours to create the digital-only documents; send them to the bank’s back office in India for checking and screening; send all cryptographically signed documents to Barclays Seychelles; and for the latter to issue the LC itself before transferring everything to the importer, food retailer the Seychelles Trading Company.
Digital documents used on the platform included certificates of origin, certificates of insurance, commercial invoice and bill of lading created by the carrier and endorsed to Barclays UK.
The transaction demonstrates how DLT can help speed up trade transactions, reduce delay-related costs for companies, optimise internal processes for banks and reduce the risk of documentary fraud.
“The technology has incredible power and huge potential to revolutionise how trade finance transactions are completed. This particular deal allowed us to start to promote the use of blockchain technology as a novel way to mitigate risk and speed up the processing of documentation in the trade cycle,” says Barclays.
Wave was one of 11 companies to go through the Barclays Accelerator programme in New York in 2015. Since then it has been working with the Barclays’ trade and blockchain team to explore the various use cases of its technology.
Pemex oils up supplier relationships
- Borrower: Petróleos Mexicanos (Pemex)
- Amount: US$3bn
- MLA: Greensill Capital
- Partner: Nacional Financiera
- Lenders: Varying group of funders from capital markets
- Law firm: Mayer Brown Mexico
- Tenor: 180 days
- Date signed: January
Greensill Capital is the first supply chain finance company to issue notes into capital markets to fund its activities, and in 2016, this strategy bore its first major fruit. In the face of prolonged low oil prices, Mexico’s state-owned oil company, Petróleos Mexicanos, changed its supplier payment terms from 20 to 180 days, and started looking for an SCF provider that could help cushion the blow.
In January 2016, Pemex initiated its first transaction of over US$100mn with Greensill, for a single supplier. This initial deal was a success, and subsequently the company experienced significant demand from other suppliers, representing over US$2bn in transactions. Greensill then decided to partner with Mexican development bank Nacional Financiera (Nafin), using the bank’s platform to expand Pemex’s supplier reach.
Greensill was the first non-Mexican bank to work with Nafin, and is currently the only financier to provide funding through its platform in US dollars. Today, Pemex’s suppliers of all sizes can access up to US$3bn in early payment through Nafin’s portal.
“The combination of Nafin’s platform and Greensill’s ability to arrange capital from its proprietary funds, institutional investors and traditional bank partners has allowed Greensill to finance Pemex’s entire vendor base, including Mexican SMEs,” says Javier Villamizar, head of Greensill Latin America.
The deal stands out for its use of capital market funding, allowing a wide range of investors (not just banks) to participate in a SCF programme. It is also the first alternative financing option for a major state-owned exploration and production (E&P) company – until the most recent oil price downturn, these firms preferred to cut costs, issue debt or sell assets to handle lower liquidity cycles.
Aligning supply chains with sustainability goals
- Borrower: Puma
- Amount: US$50mn financed invoices since the programme began
- Lenders: BNP Paribas, IFC
- IT platform provider: GT Nexus
- Date signed: Q1
International sports brand Puma joined forces with BNP Paribas, the IFC and GT Nexus last year to develop a financing programme for its suppliers that rewards social and environmental standards.
This innovative approach to financing supply chain activities has allowed Puma to align its supply chain financing with its sustainable business credentials, which the company says is a “strategic priority”. The programme offers financial incentives to Puma’s suppliers in emerging markets to improve their environmental, health, safety
and social standards.
According to Jacques Levet, BNP Paribas’ head of transaction banking Emea, the programme highlights the growing importance of sustainability matters across industries. It also demonstrates BNP Paribas’ ability to implement such innovative financing solutions, he says.
Puma set up the supplier financing programme to support its 400-odd suppliers worldwide.
As is typical of a supplier credit programme, it allows Puma to offer its suppliers the possibility of discounting their receivables due from Puma. A distinct feature of the programme is that the rate at which the bank discounts the suppliers’ invoices depends not only on Puma’s own credit standing, but also on Puma’s supplier rating, which is applied after Puma has monitored a supplier’s adherence to the company’s social and environmental standards through an auditing process.
The supplier rating structure developed by Puma has been validated and agreed with the World Bank, which makes it official and authorised.
Lars Sørensen, Puma’s COO, comments on the deal: “This is the first programme in our industry which takes into consideration a supplier’s score in Puma’s environmental and sustainability rating as a bonus or malus on related fees. Thus our suppliers’ investments in sustainability are rewarded, which is an additional incentive for them to improve their environmental and social standards.”
Financial Bubble Wrap for suppliers
- Borrower: Sealed Air Corporation
- Amount: US$200mn
- MLA: Bank of America Merrill Lynch
- Participating banks: BTMU, Crédit Agricole, Santander, SMBC
- Tenor: 120 to 180 days
- Date signed: March 22
This deal is a great example of how large buyers can leverage supply chain finance (SCF) solutions to ensure the continuation of relationships with suppliers after extending payment terms.
Sealed Air Corporation is a US food packaging, cleaning and hygiene solutions manufacturer – and the creator of Bubble Wrap. It is also a leader in sustainability, including by focusing on packaging that can reduce food waste. In fact, the Carbon Disclosure Project recently added Sealed Air to its A List for Climate Disclosure and Performance Leadership.
In 2016, the company decided to improve working capital by extending payment terms to 100-plus days. The company quickly realised the new conditions would create a significant burden on its suppliers, and mandated Bank of America Merrill Lynch (BofAML) to create a supply chain finance solution that would mitigate the effect.
Based on the bank’s CashPro trade platform, the programme was simultaneously launched in three markets with 17 buyers, with immediate uptake by Sealed Air suppliers. And unlike in most other SCF solutions, which usually only involve one bank and its various branches around the world, BofAML quickly decided to engage other financiers to allow for a flexible credit amount and availability in multiple markets.
“We worked closely with Sealed Air’s procurement team to market the SCF programme to its suppliers at one time to maximise financial impact. Our SCF solution allowed Sealed Air’s suppliers to receive payment early, thereby lessening the impact of its terms extension,” the bank explains.
“We needed a solution that would help minimise the impact of extending terms with our strategic vendors. BofAML offered a first-class, highly experienced onboarding team to help market our SCF programme. They were instrumental in clarifying the many benefits of the programme and we were confident in their technology and onboarding capabilities to effectively implement it and maximise the financial impact,” says Brian Sullivan, treasury manager, capital markets at Sealed Air.
Vitol deal to power up Ghana
- Borrower: Vitol Upstream Ghana (VGUP)
- Amount: US$1.35bn
- MLAs: Société Générale, Standard Chartered
- Lenders: Bank of China, BTMU, HSBC, ING, Mizuho, Natixis, Société Générale, Standard Chartered
- ECAs/insurers: IFC, Multilateral Investment Guarantee Agency (Miga), UKEF
- Law firms: Herbert Smith Freehills; Milbank, Tweed, Hadley & McCloy
- Tenor: 12 years
- Date signed: December 14
The Offshore Cape Three Points (OCTP) oil and gas development off the coast of Ghana is expected to pave the way to transforming Ghana’s power sector by providing a reliable source of energy that will help the country to reduce energy costs and subsidies, as well as meet its COP21 commitments for climate mitigation.
Equally impressive is the hybrid structuring of this deal and the risk mitigation instruments used, including a 15-year letter of credit for US$500mn from the World Bank’s International Development Association (IDA), to back Ghana National Petroleum Corporation’s gas payment obligations. The deal brings together financing from commercial banks, multilateral banks and ECAs. The World Bank is heavily involved in the deal via three of its agencies: the International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (Miga) and the IDA.
The US$1.35bn facility, which is split into five tranches, includes a US$470mn commercial bank facility; a U$300mn IFC facility; a US$310mn UK Export Finance (UKEF) facility; a US$180mn Miga-covered commercial bank facility and a US$90mnn UKEF-backed commercial bank facility.
The OCTP project comprises two oil and three gas fields and will be developed by Eni (44.5%), Vitol Upstream Ghana (35.5%) and Ghana National Petroleum Corporation (20%). The fields are located within the OCTP block in the Tano Basin.
Gas from the development will be used for local consumption, helping to alleviate domestic power shortages. The project is expected to help reduce Ghana’s dependency on expensive fuel imports, with the World Bank estimating savings of around US$5bn over the life of the OCTP project.
The project, which will provide between 700MW and 1,000MW of thermal power generation capacity, is considered a top priority for Ghana. Oil from the project will be exported. First oil and gas output is targeted for Q3 2017 and Q1 2018 respectively.