Acting as sole mandated lead arranger, Standard Chartered closed a US$40mn three-year structured trade finance facility for Prosperity Group, a UK-listed Hong Kong-based resources company and leading commodity trader in Hong Kong.

The facility will be financing the borrower’s cement greenfield projects in China, with a portion of the deal allocated to buy back outstanding convertible bonds.

The transaction stands out for its unique intricate structure which provides financing for capital expenditure in one type of commodity, in this case cement, secured on the trading proceeds of another commodity – that being iron ore.

Under the terms of the structure, the facility will amortise on a quarterly basis, and then be repaid primarily from the group’s iron ore trading profits. Any cashflow generated from Prosperity’s cement plants serve as a secondary source of repayment, although both sources of repayment are sufficient for debt servicing, providing greater comfort to the lender.

The prospects of the cement industry in China offer further reassurance, with the Rmb4tn stimulus package created by the Chinese government last year pumping liquidity into infrastructure projects and inevitably driving up demand for cement and steel products.

Prosperity Group has been steadily increasing its market share in the Chinese cement industry and has also put into place strategic partnerships with other players in the Chinese cement sector, for instance signing a JV with Anhui Conch to operate a port and warehouse in Jiangsu Province.

It has also acquired stakes in other cement plants, such as a 60% stake in Xiang Lu Shan Granite mining site in Guangxi mining site in Guangxi Province in 2008.

This financing facility is a key component in Prosperity Group’s financing plan to support the further expansion of its cement business and become one of the top cement operators in China.

Prosperity Group is also setting its sights beyond China, announcing in February it will be investing up to US$1bn in Indonesia’s coal, steel and cement industries.

“We were able to fully support Prosperity’s growth plans as all our solutions are tailored to our clients needs. The ability to facilitate such strategic opportunities allows us to deepen relationships with our clients and reinforce our position as a leading commodity bank in the region,” says Willem Klaassens, managing director and global head, commodity traders & agribusiness, Standard Chartered Bank.
Deal information

Borrower: Prosperity Group
Amount: US$40mn
Mandated lead arranger: Standard Chartered Bank
Insurer: Zurich Insurance
Tenor: 3 years
Date signed: August 18, 2009