GTR Best Deals 2018
Each year, GTR’s editorial team selects the Best Deals from the previous 12 months. Congratulations to those behind these 16 deals, which we’ve chosen as the cream of the crop from 2017.
India-Africa trade on track
- Borrower: Afcons Infrastructure
- Amount: US$40mn
- Lenders: First National Bank Ghana, FirstRand India, RMB South Africa, State Bank of India
- Tenor: Up to 36 months
- Date signed: February 21, 2017
On the face of it, this deal could be considered fairly vanilla – it involves a local bank issuing a guarantee in-country on the back of a counter guarantee. If being executed in Europe, or even Asia, it would be fairly straightforward, but because it’s in Africa, it takes on a whole new layer of complexity.
The US$40mn end-to-end deal for India’s Afcons Infrastructure saw three Rand Merchant Bank (RMB) teams across as many countries working together to ultimately enable the financing of the Tema-Akosombo railway construction project in Ghana.
The project specifications were such that guarantees had to be issued by a local Ghanaian bank, and as the construction company for the project, Afcons was looking for local banks that could issue guarantees of a significant size.
Although FirstRand Bank set up its Ghanaian subsidiary First National Bank Ghana in 2015, as a greenfield bank it still has a limited single obligor limit. This resulted in part of the risk being syndicated to RMB South Africa to ensure there were no regulatory breaches, given the size of the transaction – yet still adhering to the tender requirements that the instrument be issued by one single local bank.
The deal was originated by the FirstRand India team, which included SBI – Afcons’ primary bank – as the counter guarantor. A master risk participation agreement (MRPA) was executed between the two banks in Africa. The instrument was issued from India via RMB to First National Bank Ghana where the instrument was reissued on the same day with a simultaneous risk participation back to RMB in Johannesburg.
According to RMB global head of trade finance, Minos Gerakaris, the intricacies of this transaction lay in the size, speed of execution (end to end in two weeks), three sets of legal signoffs (in India, Ghana and South Africa), and the introduction of the risk participation concept to the Ghanaian central bank to allow RMB SA to support the transaction.
“It’s worth noting that we are the only African bank with a branch in India, and this illustrates our commitment to the India-Africa corridor,” he adds.
London buses save Mexican air quality
- Borrower: Alexander Dennis, Metrobus, Sky Bus Reforma, Operadora Linea 7
- Amount: Mex$418mn & Mex$478mn
- Lenders: Banco Santander Mexico, Banco Santander SA, Santander UK
- ECA: UKEF
- Law firms: Allen & Overy; Mijares, Cortes y Fuentes
- Tenor: 9 years
- Date signed: March 2017
In this transaction, financiers, insurers and borrowers achieved a number of “firsts”: the deal was the first export credit agency (ECA) transaction in the UK for Santander, the first cover in Mexican peso for UK Export Finance (UKEF), and a first-time ECA financing for the client, Alexander Dennis.
This UK bus and coach manufacturer was chosen by the Mexican government to upgrade Mexico City’s transport system, in an effort to improve air quality in one of the world’s most polluted capitals. The technology used in the new vehicles, which will replace 180 buses, will prevent over 19,000 tonnes of CO2 from being released into the atmosphere.
But closing the deal was not an easy task. Due to the quasi-special-purpose vehicle nature of Mexican bus operators and, more importantly, because of the volatility of the Mexican peso, Santander had to come up with a complex and trustworthy structure. “We had some early briefing of our treasury teams in London, Madrid and Mexico to structure hedging for Alexander Dennis to mitigate these risks and ensure we had a solution that manages exposure without clear certainty around timings of delivery and cashflows,” Mark Ling, head of international, trade and working capital at Santander UK, tells GTR. “It took persistence and effort, great collaboration and teamwork across the UK, Spain and Mexico with many teams from the side of the exporter, importer, UKEF and Santander.”
He hopes that this deal will pave the way for more ECA transactions as the bank focuses on this segment of the market.
One of the most noticeable signs of the deal’s success is the red double-decker buses now seen roaming Paseo de la Reforma – achieving local acceptance of this British classic is an accomplishment in itself.
Mozambique’s floating LNG adventure
- Borrower: Coral South FLNG DMCC
- Amount: US$4.7bn
- MLAs: ABN Amro, Bank of China, BNP Paribas, China Exim, Crédit Agricole, China Development Bank, HSBC, ICBC, Kexim, Korea Development Bank, Natixis, Standard Bank, SMBC, Société Générale, UBI Banca, UniCredit
- Participating banks: Millennium BCP, SFIL
- ECAs: Bpifrance, Kexim, K-Sure, Sace, Sinosure
- Law firms: Allen & Overy; Linklaters
- Tenor: 16 years
- Date signed: November 23, 2017
This transaction was one of the largest project finance infrastructure deals closed worldwide in 2017. It also marks the first project financing ever arranged for a floating liquefied natural gas (FLNG) facility – an LNG production process described by the participants as “pioneering” and a “symbol of engineering expertise”.
FLNG is a rather new approach to exploiting offshore gas, and involves adapting existing LNG technology to an offshore, floating vessel. This makes the production, liquefaction and storage of natural gas possible at sea, unlocking gas resources from underwater gas fields previously considered uneconomic or too challenging to reach. An FLNG facility can also be re-deployed to other gas fields.
The financing agreement, which covers around 60% of the entire construction cost, involved no less than 18 major international banks and is guaranteed by ECAs from four countries: France, Italy, Korea and China.
The deal supports an FLNG to be deployed 90km offshore for operations in the deep-water Coral gas field located in Area 4 of the Rovuma Basin. The US$8bn project will be constructed by a consortium of TechnipFMC, JGC Corporation and Samsung Heavy Industries and is set for completion in the beginning of 2024. It is expected that the deal will pave the way for similar FLNG financings in the future.
Reaching project close was a significant achievement in the context of low oil prices globally as well as the complex environment in Mozambique, which was left on the verge of a financial disaster when a debt scandal in 2016 caused donors to suspend their aid and stirred up caution among international investors. As such, the project is of strategic importance to the country’s future economic development.
A bright year for Egyptian renewables
- Borrower: Ras Ghareb Wind Energy
- Amount: US$400mn
- MLAs: JBIC, Société Générale, SMBC
- Participating bank: Commercial International Bank of Egypt
- ECA: Nexi
- Law firms: Clifford Chance; Milbank, Tweed, Hadley & McCloy; Shalakany; Zaki Hashem
- Tenor: 18 years
- Date signed: December 15, 2017
2017 marked a remarkable year for Egyptian renewable energy. It was one that saw a range of solar and wind projects reach financial close across the country, all part of the government’s efforts to diversify its power sources away from fossil fuels and secure long-term, affordable power supply to its growing population.
The Gulf of Suez 250MW onshore wind farm, located 300km southeast of Cairo, is therefore a ground-breaking step for Egypt and of massive strategic importance for the government’s ambition to generate 20% of the country’s electricity from renewables by 2020. It’s significant not only because it is the first major power sector financing in Egypt since the Arab Spring, but also because the wind farm is the first renewable energy IPP project of its kind and size in the country.
The project is being managed by Ras Ghareb Wind Energy (a Toyota Tsusho/Eurus Energy joint venture) together with French independent power company Engie and construction company Orascom. The consortium will build, own and operate (BOO) the farm, and energy will be sold under a 20-year power purchase agreement to the Egyptian Electricity Transmission Company. It is hoped that the project will serve as a template for future BOOs in Egypt and North Africa.
60% of the deal is financed by the Japan Bank for International Cooperation (JBIC), while the remaining 40% is provided by SMBC and Sociéte Générale. In addition, the Japanese export credit agency Nexi is providing insurance cover for the commercial lenders, and the Commercial International Bank of Egypt is providing a working capital facility. Construction has now begun and will take approximately 24 months to complete.
Supply chain automation first for Home Depot
- Borrower: Home Depot
- Amount: US$66mn
- Participants: Bolero, HSBC
- Date signed: July 2017
As a large US-based home improvement retailer with countless global suppliers, Home Depot requires utmost efficiency and flexibility in its supply chain. In July 2017 it achieved a new level of automation through the implementation of HSBC’s matched electronic purchase order (MEPO) financing – a product developed by the bank on the back of its partnership with Bolero. The objective was to improve the release of working capital to the company’s suppliers to achieve time and cost savings. The platform enabled the automated validation, processing, matching and approving of purchase orders and invoices, reducing the end-to-end time required to process transactions under paper-based trade.
“From our perspective the new platform is faster and more flexible. From our vendors’ perspective the early feedback is that the new platform is more efficient, enabling them to control more of the process and to do so on their own timeline. All in all, our experience so far has been positive and we appreciate HSBC’s proactive investment,” says Tom Donoghue, assistant treasurer at Home Depot.
The company is now able to automate the entire invoice approval process for 140 suppliers across Asia, Europe and North America. It also offers suppliers real-time online tracking of their invoice status.
This is the latest in a series of digitisation partnerships for HSBC. In 2017, it teamed up with IBM to automate trade finance documentation, rolled out its LinkScreen virtual platform for business banking, and partnered with Tradeshift to develop a supply chain finance platform combining electronic invoicing, document matching and early payment capabilities. It is also one of several banks that have signed up to develop we.trade, a blockchain trade finance platform for SMEs.
Landmark deal for clean fuels in Kuwait
- Borrower: Kuwait National Petroleum Company (KNPC)
- Amount: US$6.25bn
- MLAs: HSBC (ECA co-ordinating and documentation bank), Standard Chartered (global facility agent and environmental bank), BBVA, BNP Paribas, Crédit Agricole, Mizuho, MUFG, Natixis, Santander, SMBC, Société Générale
- ECAs: Atradius, JBIC, Kexim, K-Sure, Nexi, Sace, UKEF
- Law firms: Al Tamimi; Asar Legal; Clifford Chance; Freshfields Bruckhaus Deringer; Latham & Watkins
- Tenor: Sace facility 10 years, other facilities 13 years
- Date signed: August 29, 2017
In response to a lower oil price environment, the Kuwait National Petroleum Company, a subsidiary of the Kuwait Petroleum Corporation, has embarked on an ambitious US$14.5bn project to modernise, expand and upgrade two of its existing refineries. Known as the Clean Fuels Project, the goal is to create an efficient, integrated refining complex that can meet international demand for high-grade petroleum products with reduced environmental impact.
It was all made possible in 2017 by a large group of banks and ECAs, which came together from South Korea, Japan, Italy, the Netherlands, and the UK, to enable KNCP to complete its funding plan for the project.
The project is not just significant for Kuwait: the winning deal has been described by its participants as a “truly landmark financing for the ECA industry” as the largest ever ECA-backed corporate-level facility to date. Involving seven ECAs and 11 commercial banks across six facilities, the deal stands out primarily in its scale and the number of parties involved.
Alexei Rybakov, director in the export and specialised finance team at HSBC Middle East, says: “The diversity of the ECA mix, and the fact that some of them acted as direct lenders, while most others took part in the negotiations of the finance documentation, meant that it was particularly challenging to accommodate – and harmonise as much as possible – agencies’ requirements while still delivering an attractive solution to the client.”
The deal also serves as an important reference point for future ECA transactions in Kuwait: it is the largest ECA-supported financing in the country and the first ECA debt raised by a KPC entity.
“It’s an example of Middle East borrowers opting selectively to take ECA financing in their own name where it makes sense, based upon manageable/limited existing borrowing levels and key investments,” says Tim Lamey, head of export and structured finance, Emea at Mizuho, adding that the deal represents “a general template for cases where KPC and/or other Kuwaiti parties decide to undertake major capex or infrastructure investments without wishing to do so on a limited recourse/project finance basis”.
World Bank gets out of its comfort zone for Ukraine’s heating needs
- Borrower: Naftogaz
- Amount: US$500mn
- MLAs: Citi (facility agent and international account bank), Deutsche Bank
- Insurer: IBRD
- Law firms: Allen & Overy; Sayenko Kharenko
- Tenor: 4 years (2 years availability + 2 years repayment)
- Date signed: February 16, 2017
This US$500mn loan to Ukraine’s Naftogaz was over two years in the making. With ongoing tensions between Ukraine and Russia, the state-owned gas company was forced to start importing from other European suppliers in late 2014, requiring the creation of new trade routes with the West. On top of having to allocate capital to establishing and managing these routes, Naftogaz faced the requirement from its new suppliers to provide some sort of payment guarantee, as they were not yet comfortable with the company’s risk.
With the macroeconomic climate causing commercial financing costs to soar, Naftogaz approached development financial institutions for working capital financing support. But, while interested and presenting the right risk capacity to support Ukraine, these institutions were limited in their capacity to provide the gas company with the type of support it needed – specifically trade or working capital finance.
The International Bank for Reconstruction and Development (IBRD, part of the World Bank) was able to break the mould. With the help of Citi and Deutsche Bank as mandated lead arrangers, it designed a new financing tool, giving guarantees to commercial banks to issue letters of credit (LCs) to support Naftogaz’s gas purchase contracts. The resulting facility was a €478.3mn financing, provided by the MLAs with a 100% guarantee support from the World Bank, to be used to finance gas purchases from Naftogaz’s European suppliers as well as from Russia’s Gazprom over a period two years, with up to two years available for repayment.
The transaction is directly tied to the IMF-led bailout of Ukraine of 2017, and helped to achieve the security of gas supply for Ukraine through the winter. It also facilitated Naftogaz’s access to new commercial counterparts: upon financial closure, more than a dozen international gas suppliers joined the financing.
Importantly, the deal also allows for syndication to other lenders post-closing. In this case, Citibank Europe, acting as agent bank, will issue LCs on behalf of participating lenders, with each committing to funding only on its own behalf. This allows each lender to benefit directly from the World Bank’s AAA-rated guarantee.
Liberia gets Crown Agents Bank’s vote
- Beneficiary: Cetis DD
- Amount: US$1.58mn
- Issuing bank: International Bank (Liberia)
- Confirming bank: Crown Agents Bank
- Tenor: 3 months validity, plus
1 month deferred payment period
- LC issued: September 1, 2017
After nearly a decade and a half marked by two destructive civil wars (1989-2003), Liberia entered a period of democracy in 2005 with the election of former World Bank employee Ellen Johnson Sirleaf as president.
Despite the 12 years of democracy and stability since then, the attention of the international financial system has strayed. In fact, most of the remaining international correspondent banks servicing Liberian banks exited the market, leaving the country very poorly covered in terms of access to international markets, despite the Ebola humanitarian crisis and the need to dispatch much-needed funds into the country.
Crown Agents Bank is also the only international bank clearing US dollars in Liberia today.
The bank has been playing a crucial role in trying to re-open the Liberian banking system to the international markets again. Through an enhanced client due diligence-led approach, it has been working with the Liberian banks to improve their compliance systems, policies and procedures, thereby making them bankable from an international standards point of view. International Bank (Liberia) has been at the forefront of this effort and Crown Agents Bank is its correspondent bank in all major currencies – which resulted in it acting as confirming bank in this letter of credit transaction for the import of ballot papers.
The 2017 elections were the first to be run entirely by the country’s government and security forces since the conclusion of the civil wars in 2003. They saw George Weah elected as Liberia’s 23rd president.
“Supporting the importation of the ballot papers for the 2017 Liberian presidential election was the corollary of Crown Agents Bank’s posture in these so-called ‘frontier’ markets,” says Duarte Pedreira, the bank’s head of trade finance. “By adopting strict due diligence criteria at both client and transaction levels, we take time to understand both the Liberian market and our local counterparties, thereby being able to participate in these historical and critical moments in a country that much welcomes our support.”
Public and private lenders unite for Arctic wind
- Borrower: GE, Green Investment Group
- Amount: €500mn
- Lead arrangers: EIB, HSH Nordbank, KfW Ipex-Bank, NordLB
- ECA: Euler Hermes
- Law firms: CMS; Latham & Watkins; Simmons & Simmons
- Tenor: 18 years
- Date signed: November 7, 2017
To achieve this landmark renewable financing, project sponsors GE and Green Investment Group (GIG) reached out to a range of different entities, each of which added a layer of security for the others. The wind energy produced at the Markbygden ETT wind farm in Northern Sweden was to be purchased by an unrated subsidiary of aluminium producer Norsk Hydro group through a 19-year power purchase agreement (PPA) – the largest non-hydro corporate PPA for renewables on record. The sponsors partnered as 50/50 equity investors on the €780mn, 650MW project, but needed to raise approximately €500mn in debt, which they deemed to be beyond the available capacity of the commercial debt market. Therefore, they decided to seek a mix of funding from ECAs, DFIs and commercial banks to develop bankable revenue contracts, maximise leverage and protect lenders.
With the wind turbines manufactured by GE in Germany, they procured a 95% political and commercial risk insurance policy from Euler Hermes, under which the European Investment Bank (EIB), NordLB, KfW Ipex-Bank and HSH Nordbank provided funding. The sponsors also closed an uncovered EIB facility and an uncovered commercial bank facility, all with tenors of 18 years. This is the first time for EIB to provide both direct funding and Euler Hermes-funded cover.
Edward Northam, Europe head of GIG, says: “This project is a landmark transaction on many fronts and represents the new frontier in European onshore wind. It demonstrates that in the right market, with the right location, the right technology and the right partners, it is possible to develop and attract private capital into new onshore wind farms.”
The project also fits within the growing trend of large energy consumers backing renewables developments through PPPs to ensure clean energy supply for their facilities.
Construction at Markbygden has started, with 179 of GE’s 3.6MW, 137-metre rotor turbines to be equipped with innovative ice mitigation and wake management systems, ensuring more efficient energy production. Commissioning is expected in the second half of 2018 and full operations in December 2019.
Standard Chartered goes big in Pakistan
- Borrower: Pakistan ministry of finance
- Amount: US$700mn
- MLA: Standard Chartered
- Insurer: IBRD
- Law firm: Norton Rose Fulbright
- Tenor: 10 years
- Date signed: June 2017
Over the coming years, with the construction of the deep sea port facility at Gwadar, as well as many other trade infrastructure projects, Pakistan is going to be a key node in Central Asian trade. As the largest international bank in the country, and the foreign bank with the longest presence in the country, you can expect Standard Chartered to play a key role in the Belt and Road Initiative and the additional trade that results from that. This deal, which saw US$700mn borrowed by the Pakistani government for the import of commodities and capital goods, demonstrates the bank’s expertise in the country.
This transaction was closed just 11 days after being mandated, with the assistance of an IBRD guarantee. It was the largest underwritten term loan for any Pakistani borrower in history, largest ever hedging transaction executed by a Pakistani counterparty with a financial institution, and also the first IBRD-supported financing under an Islamic financing facility, given that there will be a partial conversion to a murabaha structure. With such an array of “firsts”, it’s little wonder this has been chosen as a Best Deal.
A Standard Chartered spokesperson outlines some of the challenges involved with closing a deal on these terms in Pakistan.
“The quantum of financing required was large for a foreign currency loan. Standard Chartered achieved this by underwriting the entire facility amount. The documentation was structured to facilitate partial conversion to a murabaha structure. This is currently being implemented and once completed, it will be the first World Bank/IBRD supported sharia-compliant loan. Furthermore, the pricing was a challenge, since the ministry of finance required a competitively priced long-term facility,” they tell GTR.
BNP Paribas takes flight in Indonesia
- Borrower: PT Garuda Indonesia
- Amount: US$50mn
- MLA: BNP Paribas
- Tenor: 1 year
- Date signed: February 21, 2017
On this deal, French bank BNP Paribas reissued and confirmed standby letters of credit (SBLCs) in order to accelerate the release of cash security deposit for Garuda, the national airline carrier of Indonesia. The released cash was related to the lease payments Garuda had made for Boeing and Airbus commercial aircraft. The business of aircraft leasing is becoming increasingly important, since it allows airlines to optimise their fleets at any given time, without the need to pay for an entire and expensive new fleet.
Among the challenges for BNP Paribas was the fact that there were 24 SBLCs required, and eight aircraft lessors, spread between Dublin and New York. With Garuda being based in Jakarta, it meant that a bank with presence and capability in all three of these jurisdictions was required to both issue and confirm the SBLCs, and BNP Paribas fitted the bill.
Mario Utama, head of transaction banking, Indonesia at the bank, tells GTR that completing the deal required co-ordination between the multiple jurisdictions. Particularly challenging was the fact that the deal required a short turnaround time.
“There was a requirement for synergy between BNP Paribas offices, strong technical expertise on guarantees and deep understanding of the different jurisdictions and regulatory environments, involving multi-region trade and legal experts in order to effectively negotiate the acceptability of different clauses,” Utama says.
He adds: “The successful co-ordination for the issuances shows the true strengths of BNP Paribas’ global network, trade expertise and excellent understanding of the complex legal and regulatory environments, which enable BNP Paribas to offer the cross-border and cross-region support required by its business partners.”
Debut Sace-backed financing for Boeing aircraft
- Borrower: Güneş Ekspress Havacılık (SunExpress)
- Amount: Up to €100mn
- Arranger: JP Morgan
- Lender, ECA agent: VTB Bank (Europe) SE, Vienna branch
- ECA: Sace
- Law firms: Clifford Chance; Holman Fenwick Willan
- Tenor: 10 years
- Date signed: May 2017
As the first financing of Boeing aircraft with export credit agency (ECA) support since the 2015 closure of US Exim, and the first non-US Exim bank financing for Boeing in over a decade, this transaction was a shoo-in for selection as a Best Deal.
With US Exim unable to approve loans and guarantees above US$10mn since June 2015, JP Morgan says it has been working closely with Boeing to conceptualise how European ECAs might support the export of Boeing aircraft, particularly given the importance of European parts in the Boeing supply chain.
Those discussions led to this transaction, the first-ever Sace-guaranteed financing for Boeing aircraft, part of a framework agreement signed in 2017 between Sace, the Italian ECA, and Boeing to provide up to US$1.25bn of guarantees for aircraft purchases.
“Upon the successful execution of this deal, the Sace-covered aircraft finance scheme has been recognised among the world’s leading market participants and acknowledged as a highly competitive tool for aircraft finance,” says Arthur Iliyav, chairman of the management board of VTB Bank (Europe) SE.
SunExpress, based in Antalya, Turkey, is a joint venture between Turkish Airlines and Lufthansa. The financing was used to purchase three new Boeing 737-800 aircraft, which were delivered to the airline in April and May last year.
The deal was structured to have fixed and floating rate tranches. The fixed rate tranche was particularly important to SunExpress, as it gave the airline greater budgetary certainty for a long tenor debt obligation.
“We were delighted to undertake the first Sace-supported finance for a Boeing aircraft, and to introduce a creative transaction to SunExpress,” says John Meakin, JP Morgan’s global head of aviation export finance.
Trafigura in ground-breaking securitisation
- Borrower: Trafigura
- Amount: US$470mn
- MLAs: DBS, Natixis (collateral agent and liquidation agent), OCBC, Westpac
- Participating banks: BTMU, Credit Suisse (account bank), Mizuho (lender)
- Insurers: Intertrust Finance Management, Marsh
- Law firms: Allen & Gledhill; Allen & Overy
- Tenor: 1 year
- Date signed: November 2, 2017
Commodity trader Trafigura has, for years, been one of the biggest visitors to the borrowing markets. Already this year it refinanced US$4.5bn of revolving credit facilities (January) and closed well over US$6bn in debt in Tokyo and London (March). But with volatility in commodity prices and fears over being over-leveraged, with the dollar borrowing rate set to hike multiple times this year, Trafigura has been looking to innovative ways of funding its operations, and this innovative structured finance programme ticks that box.
This was the first securitisation of commodity inventories and, as such, allowed the trader and investors to tap funding sources that were previously not accessible.
“The transaction was launched at an opportune time when commodity prices are rising and the commodity complex seems to be back in an upwards price cycle. Moreover, the non-recourse nature of the transaction offers Trafigura the ability to finance its growing volumes without stretching its existing finance lines,” Laurent Christophe, head of corporate finance at Trafigura, tells GTR.
Doing any sort of transaction for the first time comes with challenges, and this was no different.
“This deal included two main challenges. First, we had to put in place the correct architecture to manage risk. This includes risk related to hedging the price of the underlying commodities, and the risks related to the commodities owned by the special purpose vehicle, such as damage, theft and storage control. Second, we had to implement the structure across 12 jurisdictions, each with multiple legal constraints,” explains Dominique Fraisse, global head of energy and commodities at Natixis.
However, a spokesperson for Allen & Overy, one of the law firms involved in the deal, says this is something we will see more of in the future.
“This structure has allowed Trafigura to diversify its sources of funding, which we consider is likely to present an attractive opportunity to other similar institutions in the commodities sector. In addition, as the transaction includes mitigants to address certain risks often associated with commodities financing, we consider that this structure should increase and diversify the pool of investors,” they say.
UKEF finds new post-Brexit partners in Africa
- Borrower: Ministry of finance, planning and economic development of Uganda (Mofped)
- Amount: €307mn
- MLA: Standard Chartered
- Lenders: Standard Chartered, UKEF
- Law firms: Baker McKenzie; Kampala Associated Advocates
- Tenor: 14 and 6 years
- Date signed: December 7, 2017
There is no doubt that, in light of the Brexit referendum, the UK has been forced to look for new friends outside of its typical EU trading partners. One region which has drawn its attention is Africa: this winning deal has been hailed as a good example of the UK’s export credit agency stepping up its support in areas it hasn’t been that active in historically, in this case Uganda.
The deal, which comprises a €270mn 14-year direct lending facility from UKEF and a €37mn six-year commercial facility, will help finance the construction of a new international airport.
It is the first major project in Uganda to be supported by UKEF and the export credit agency’s largest-ever loan to an African government. It was signed after a visit earlier in the year by the UK’s international trade secretary Liam Fox and a business delegation to explore new opportunities for trade with Uganda and Ethiopia.
Hoima airport, in the Kabaale region, will be the country’s second international airport and will open access for the delivery of equipment, materials and services.
With large-scale infrastructure and energy projects planned in the area, the airport, which is due for completion in 2021, is expected to have significant long-term benefits for the country’s developing economy and energy independence.
More specifically, the loan will help support work on the construction of the runway, taxiway and cargo terminal that will be carried out by UK infrastructure company Colas. A second phase of development is planned to improve the airport’s capacity to support tourism and international trade at a later stage.
BTMU innovates for Vietnamese dairy
- Borrower: Vietnam Dairy Products Joint Stock Company (Vinamilk)
- Amount: US$50mn
- MLA: Bank of Tokyo-Mitsubishi UFJ (BTMU)
- Tenor: 180 days
- Date signed: February 28, 2017
As Asian economies have developed, so too have the dietary habits of people living there. With more money in their pockets, people’s tastes have been transformed. Demand for red meat has exploded in China, for example, leading to a huge boom in exports of beef and lamb from Australia and New Zealand. In Vietnam, one of Southeast Asia’s most dynamic economies, the growth of the dairy sector mirrors that of the economy itself, growing at a rate of 16.6% per year for the past six years.
Satisfying much of the national demand for dairy produce is Vinamilk, a dominant company in the processing, manufacturing and distribution of milk and other dairy products from its 18 factories across Vietnam. If Vinamilk grinds to a halt, so too does Vietnam’s booming dairy market, and so the need to keep its supply chain well capitalised was imperative.
In bringing Vinamilk’s suppliers onto a supply chain finance programme, BTMU had to navigate a regulatory environment that was challenging, with the bank ensuring that all parties were aware of the tenets of the recently implemented Factoring Act in Vietnam. But there were also environmental issues at play.
“Climate change in the last five years has had an adverse effect on this sector. Unpredictable weather conditions have caused crop damage and this has led to agricultural income loss to many farmers and aggregators. To tackle this situation, the Vietnamese government has been encouraging investments into technology to support the agriculture sector. Although this area has seen increasing support from many banks, more is required to facilitate the optimum level of financing needed in the sector,” says Shirish Garg, the bank’s director, regional trade and supply chain finance sales, Asia and Oceania.
BTMU has plans to enrol more suppliers in the programme and, now that it has successfully deployed such a solution for the largest player in the market, has a good view of the entire ecosystem. This, Garg tells GTR, leaves it in a great position to further milk Vietnam’s supply chain market for years to come.
Deutsche’s China deal flow keeps coming
- Borrower: Xinjiang Qiya Aluminium and Power Co (Qiya)
- Amount: Rmb600mn (US$90.65mn)
- MLAs: Deutsche Bank, Rabobank
- Law firm: King & Wood Mallesons
- Tenor: 2 years
- Date signed: November 3, 2017
As GTR goes to press, US President Donald Trump has just unleashed stinging tariffs on aluminium and steel imports to the US, a move which threatens to disrupt what has generally been a positive year for metals, with China finally managing to cut back on some of the oversupply that had had a depressing effect on pricing. For those in the structured commodity trade finance (SCTF) business, however, life goes on. Theirs is a medium to long-term game, with prices and markets not as prone to geopolitical headwinds as their peers on the spot financing desks.
This is perhaps why, year in, year out, Deutsche Bank continues to impress with its structured metals deals in China. No matter what the market, they keep delivering deals and continue to attract new Chinese clients over to the structured financing game. This was Qiya’s first time to ever raise funding from a foreign bank in the structured commodity trade finance market, doing so on a deal that had Trafigura as an offtaker.
“The SCTF business model makes it possible to do business in a way that is resilient through the commodity cycles. That means when prices go up, we don’t get over-excited and lend money without discretion. Equally when prices come down, we don’t panic and pull credit lines from our clients. Instead we focus on identifying companies with long-term sustainable competitive edges, for example achieving low cost through technology, because these companies won’t be affected by the ups and downs of the commodity prices,” Frank Wu, head of structured commodity trade finance, Asia Pacific, at Deutsche Bank explains.
The pipeline, Wu says, is healthy for the coming year and with a successful maiden transaction now under its belt, he hopes that Qiya will be a repeat customer – attracting other names to the market in turn.
“The main challenge these days is to start a new relationship and close the first deal with a new client. Once the door is opened, more banks will come and more repeat deals will follow. Deutsche Bank always strives to be the leader in developing new clients, rather than being a follower. We have done it many times in the past, and we did it again for Qiya,” he says.take me back