On December 15, 2006, ABN AMRO, Barclays Capital and Deutsche Bank, as mandated lead arrangers, closed a syndicated pre-export finance facility for Switzerland-based ENRC Marketing, the trading entity of the giant Kazakh metals and mining group ENRC. The target amount of US$1bn more than doubled later on in March 2007 in general syndication, raising US$2.3bn. It was subsequently scaled back to US$1.48bn for the borrower.
The transaction is the largest ever syndicated pre-export finance facility for a first-time borrower worldwide, the largest ever syndicated pre-export financing for a Kazakh borrower, and the first ever structured finance facility backed by ferroalloys.
This facility is ENRC’s first introduction to the syndicated loan markets and is an important step in ENRC’s preparation for a listing on the London Stock Exchange later this year.
The facility is secured by an assignment of proceeds from future deliveries and sales of ferroalloys, with Kazchrome – the world’s third largest producer of ferroalloys – acting as supplier and guarantor. The proceeds will be used for general corporate purposes, including the construction of a new US$800m aluminium smelter in Pavlodar, Kazakhstan.
Repayment will be made from sales proceeds paid by a diverse pool of international buyers of ferroalloys, collected in pledged accounts of ENRC Marketing held with Deutsche Bank in Amsterdam.
The structure of the deal provides flexibility for the group to complete its restructuring programme without the need for lenders’s consent for each step.
The risks for the deal lie with performance risk. The lenders take performance risk on the producer of the commodity – Kazchrome – located in Kazakhstan. As long as Kazchrome is able to produce and export ferroalloys to the Swiss trader, and the trader is able to find buyers for the material, lenders will be repaid.
“We believe that this is something rather new,” says Kris Van Broekhoven, director, structured commodity trade finance at Deutsche. “Traditionally, in prepayment facilities where a trader acts as borrower and an emerging market producer as supplier of the commodity, loan proceeds are used by the trader/borrower to prepay for deliveries under the supply contract with the producer.
“This is not the case here, since the supplier – Kazchrome – does not need US$1bn of financing for its own operations. Instead, the proceeds are made available to the various entities of the ENRC Group, via a central group treasury function performed by the borrower. A significant beneficiary of these funds will be the new aluminium smelter.”
Although Kazakhstan is a major producer of bauxite and alumina, it does not produce aluminium. Instead, these raw materials are sold to Russia (eg, Rusal) and China. ENRC is now building a completely new aluminium smelter in close proximity to its Pavlodar based alumina refinery. ENRC will increase capacity at the refinery to feed the new smelter. The plant is scheduled to start operations in early 2008.
Borrower: ENRC Marketing
Mandated lead arrangers and bookrunners: ABN AMRO; Barclays Capital; Deutsche Bank
Guarantor: JSC TNC Kazchrome
Tenor: 5 years
Date signed: December 2006