Sweet success for African sugar deal

In May 2008, Nedbank closed a US$12mn revolving sugar import stock facility for Tate & Lyle Sugar Trading, to import sugar into Kenya, Ghana and Togo.

Although small in size, the facility’s structure could act as a useful template for future soft commodity financings in the Sub-Saharan region.

Tate & Lyle’s traders tend to buy their sugar from their main origin markets in Brazil and Thailand before selling it on to destination markets, and they are particularly keen to develop their African business. The three destination markets being targeted by this latest financing are Kenya, Ghana and Togo, but it is hoped that the deal structure can eventually be applied to other African countries.

Nedbank structured the financing as a revolving facility. The revolving nature of the deal means that sugar can be drawn down as and when needed. This avoids the need for the offtaker to buy vast quantities of sugar which then needs to be kept and maintained in a warehouse.

Tate & Lyle has one committed offtaker in place in each market, through which all distribution takes place. Collateral managers were also selected to oversee the warehouses and monitor the locally-selected warehouse managers, therefore providing insurance against loss of stock.

Collateral management arrangements (CMAs) were set up with London-based Drum for the deals in Kenya and Ghana, and Paris-based Getma for Togo.

The deal works by allowing Tate & Lyle to draw down funds against presentation of a warehouse receipt issued by the CMA partner.

All proceeds from the sale of sugar are held in a collection account, which is essentially a straightforward account managed by Tate & Lyle, over which Nedbank holds a charge.

When the proceeds are deposited in the collection account, the CMA partners are instructed to release the goods.

Nedbank also has a pledge over the sugar. This is in place to allow for the extreme situation where Tate & Lyle fail to repay the advance, and Nedbank takes control of the goods.

All market risk, such as losses and credit default, is taken by Tate & Lyle, and the political risk is written into the margin being charged on the Nedbank-arranged deal.

The deal structure differs from import facilities established in previous years. Up until around 10 years ago, trade deals were usually arranged with parastatals, fully or semi state-owned corporations. These arrangements would usually involve a lump-sum investment, which would then be repaid in instalments, rather than a facility that is drawn down as and when needed.

From Nedbank’s point of view, this relatively small facility can now potentially be used across the Sub-Saharan region and finance an increasingly level of business.

John Vowell, director, structured trade and commodity finance at Nedbank, comments: “In a year’s time, US$12mn revolving facility could accommodate a flow/turnover of up to US$48mn, making it an interesting facility. And the facility structure also allows us to bolt on other countries.”

Vowell now hopes the transaction can act like “an umbrella deal for Sub-Saharan Africa”, as well as demonstrate Nedbank’s capacity to tailor-make commodity financings for the sometimes tricky Sub-Saharan market, regardless of the size of the deal.

Deal Information

Borrower: Tate & Lyle
Amount: US$12mn
Sole mandated arranger: Nedbank
Law firms: Denton Wilde Sapte and DLA Piper
Date signed: May 2008