Nedbank Capital’s global structured trade and commodity finance (GSTCF) team arranged and funded a R132mn (approximately US$17mn) facility for FirstCape Vineyards, a South African wine producer which exports to the United Kingdom.
The facility – a first of its kind in the South African wine industry – was structured to relieve cashflow constraints of both the wine co-operatives producing the wine and the farmers delivering the grapes to the wine co-operatives.
Nedbank Capital was mandated to arrange, underwrite and fund the total facility, which is a combination of a pre-export collateral management agreement and debtors financing structured into one umbrella facility.
This is uniquely structured to cater for the company’s needs, and provides financing from the initial harvesting of the grapes to the end sale of the bottled wine in the UK. Grape-producing farmers receive a sizeable upfront payment from FirstCape, with the balance being repaid once the wines are sold to offtakers in the UK.
Once purchased, the wine is stored in wine tanks for up to two years, and then bottled, corked, labelled and exported. The facility is repaid 60 days after shipment to the various department stores and outlets in the UK.
FirstCape is the brainchild of the DeWet Co-operative in South Africa’s Western Cape, and the UK-based wine marketing company Brand Phoenix.
The increasing popularity of FirstCape wines compelled DeWet to approach various other co-operatives in the Worcester region of the Western Cape. This was necessary to fill the ever-increasing demand in the UK market. The company has since grown to become the number one exporter of South African wines to the UK market.
Sekete Mokgehle, head of global structured trade and commodity finance at Nedbank Capital in Johannesburg, comments on the challenges faced in closing the deal: “The sheer nature of wine doesn’t normally lend itself to stock financing as it cannot be readily identified. Wines get blended and moved around so much that it is difficult to put in place the traditional collateral managed arrangement transaction. This challenge was overcome by using various legal security measures and buy-in from the client and co-operative to move forward and get effective security over the stock so that Nedbank Capital would be in a position to finance the wines.
“The taking of security in itself was also a difficult task as the five co-operatives, who are part of the producing cellars’ group, are made up of more than 200 shareholders who all had to sign resolutions to enable the deal to proceed.”
The Nedbank Capital team considers the facility to be a landmark transaction because as far as they are aware, it is the first deal in the South African market that provides a solution to the cashflow constraints experienced by the farmers.
Mokgehle explains: “Traditionally, farmers only get paid for their grapes after the end product, ie, once the wine is sold and the money is retrieved from the debtor. In this transaction the farmer receives a payment upon delivery of his grapes to the co-operatives that produces the wines for FirstCape. This helps the farmer to better manage his farm with respect to providing good quality crops year on year.
“The success of this transaction has created a model which Nedbank Capital is intending to roll out to several other wine co-operatives in the Western Cape, as part of our quest to dominate the local environment in trade structured deals.”
Borrower: FirstCape Vineyards
Amount: R132mn (US$17mn)
Mandated lead arranger: Nedbank Capital
Law firm: Nedbank Capital’s in-house legal department
Date signed: September 2, 2009