Cargill is supporting trade finance in Honduras and Nicaragua through a US$31mn loan to Honduran bank Banco Ficohsa.
The loan has been provided via the commodity giant’s trade and structured finance division, which aims to create additional value for Cargill and its customers via favourable financing.
Of the total amount, Banco Ficohsa will use US$18mn for trade finance services in Honduras, and US$13mn in Nicaragua.
The deal is helping the bank diversify its sources of funding and allowing it to offer competitive financing to exporters in the two countries. A statement on the bank’s website says that the transaction is “key to supporting the expansion and bilateral trade of Nicaragua and Honduras with other countries in the region and in the world”.
Upon signing the agreement, Xavier Vargas, president of Cargill Central America, said: “There is total commitment on the part of Cargill to promote the economic development and social equality of the countries in which we operate. We have large investments in Honduras and Nicaragua, and with this financing we reiterate our continuous support for these economies.”
However, it is unlikely Cargill is keeping the risk of such a loan on its own balance sheet. Jean-Francois Lambert, founding partner of Lambert Commodities, tells GTR: “Very large trading houses such as Cargill, Bunge, Dreyfus, ADM and Noble have built structured finance teams internally. The role of these teams is to support the physical traders in offering financial solutions, adding value to the commercial propositions, and take advantage of physical flows to offer structured transactions to investors and banks.
“This financial engineering capability is by and large construed as an independent profit centre. The remit of these teams is to generate monetary value, without using the trading house balance sheet and exposing it to reputational or financial risk. The question remains to be seen whether Cargill keeps this particular risk on its own balance sheet, but they usually don’t.”
Commodity houses using their credit strength to facilitate trade finance – and generate revenue in the meantime – in countries where banks may find it difficult to tap their correspondent banking networks for funding – Honduras and Nicaragua included. It is not uncommon, but it is rarely advertised. In fact, Cargill did not respond to GTR’s requests for more information on the deal, which doesn’t surprise Lambert: “Cargill is unlikely to comment on this. This is a very large business for them and one where their financial engineering skills are at par or above commercial banks’.”