Standard Bank nurtures growth in Malawi

In August 2008, Standard Bank, drawing on its workforce in Malawi, closed a structured trade and commodity import finance facility totalling US$56.5mn in favour of Malawi Fertiliser Company. The deal reinforces the bank’s expertise in specialised financing projects in emerging markets.

According to Anne-Marie Woolley, director – head of trade finance and services (Africa) at Standard Bank in London, the scheme to support this key sector for the Malawi economy was struck at a time when world fertiliser prices were at an all-time high.

As such, it was vital to come up with a structure that would enable the bank and its clients to manage the price risk during the life of the loans. “The structure required dealings with the government of Malawi in terms of how their subsidy payments would be distributed. Additionally, logistics management was key to ensure security of the product moving from port to Malawi, a landlocked country,” she says, commenting on the challenges faced. “This award, and other recent awards, recognises our long-term commitment to trade finance banking in Sub-Saharan Africa and our strategy of having significant on-the-ground expertise in each of the countries in the region.”

Phillip Madinga, head of corporate and investment banking at Standard Bank in Malawi, adds that the deal “also demonstrates the bank’s commitment to partner the Malawi government in one of its key strategic initiatives outlined in the Malawi growth and development strategy (MGDS) – agriculture and food security. It also demonstrates the confidence that customers have in the bank structuring such complex and innovative transactions”.

Commenting on the structure of the deal, Madinga explains that the deal was split up “as per shipping schedule and linked to onward distribution of goods to different offtakers and their payment terms. The facility was to three different entities on similar terms, but slight variations linked to individual practice”.

The finance will be used to import fertiliser – a key element of the agricultural sector. Agriculture is the foundation of Malawi’s economy. The sector contributes about 38% of GDP; 80% of export earnings; and employs 80% of the country’s workforce. Malawi has one of the highest population densities in Africa, with 85% of the population farming on small plots. Soil degradation is widespread, and home-grown manure from livestock or composting is not commonly practiced.

Most farmers rely on chemical fertiliser for a good harvest. Until the mid-1990s, fertiliser sales – mostly imported – were controlled and subsidised by the government. When the system was privatised, a few central companies took over.

Deal Information

Borrower: Malawi Fertiliser Company
Amount: US$56.5mn
Mandated lead arrangers: Standard Bank Malawi; Standard Bank of South Africa
Collateral management company: CMA – Global Inspections
Tenor: 9 months
Margin: 3–5%
Date signed: August 2008