The longest ever maturity for a syndicated facility in favour of a Russian coal producer, Yuzhkuzbassugol, was closed last year. The sole mandated lead arranger, bookrunner and facility and security agent was SG CIB.
Yuzhkuzbassugol is the largest coking coal and third largest coal (coking and steam coal) producer in Russia with production at 17mn tonnes in 2005 (13mn tonnes of coking coal and 4mn tonnes of steam coal) and has reserves of coal for more than 50 years at their current production level.
The facility consists of a 4.5-year US$92mn secured term loan coal pre-export finance facility amortising in 36 equal monthly instalments after an 18-month grace period. It is secured by (i) first ranking assignment of commercial contracts linking Yuzhkuzbassugol, the coal producer pre-export finance borrower, to Greyridge Coal & Shipping, the coal trader and trade finance borrower, and (ii) second ranking assignment of the commercial contract between the trade finance borrower with the final offtaker.
The pre-export finance is closely tied with a related 4.5-year committed up to US$7.5mn trade finance line in favour of Greyridge, secured by first ranking assignment of the commercial contract between the trade finance borrower and the final offtaker.
This is the first pre-export finance transaction to embed a trade finance line for the trading arm of a production entity, claims SG. The innovative structure was tailor-made to satisfy the financing requirements of both the coal producer (pre-export finance borrower) and the coal trading company (trade finance borrower) while providing the full security package to the lenders who will participate proportionally in both tranches.
“The structure for this facility is a real tailor-made structure,” says Philippe Landry, head of structured commodity finance, metals and minerals, from SG. “Indeed, the client wanted to kill two birds with one stone: 1) to finance the producer, OAO Yuzhkuzbassugol and 2) to finance the trader (Greyridge) to transport and to prepay coal to the producer. The challenge was that it was necessary to attribute the same sales contract to secure these two financings.
“The solution we found was to connect a standard pre-export finance facility to the producer with a trade facility to the trader: the final offtakers’ proceeds were transferred first, to the account pledged under the trade facility and second, to the account pledged under the pre-export finance facility. And the sales contract pledged are first-ranking security under the trade facility and second-ranking security under the pre-export finance facility.”
Another crucial issue, treated by law firm Denton Wilde Sapte, was to address concerns which may rise between the lenders under the pre-export finance and trade finance. Instead of drafting a reasonably difficult document of intercreditors agreement, it was decided to provide for a special wording in the facility agreement to have all the lenders participating pro rata in each facility.
The pre-export facility also benefited from the suretyship of the producer’s holding company (which was participating in the chain of commercial contracts), pledge on the Russian accounts of the producer and of the holding company as well as a guarantee from the trader. The trade finance facility was also covered by the pledge on coal in transit in addition to the first ranking assignment of the sales contracts.
This transaction was syndicated as a whole, during the first half of the year, with each lender funding proportionally under both the pre-export finance facility and the trade finance line. The amount was increased through additional syndication completed in August 2006.
Borrowers: Yuzhkuzbassugol; Greyridge Coal & Shipping
Sole mandated lead arranger: SG CIB
Lead managers: Banque Cantonale Vaudoise; GarantiBank International; Moscow Narodny; Natexis Banque Populaires; NM Rothschild & Sons; SMBC Europe
Margin: 2.5% initial/2.25% increase amount
Law firms: Denton Wilde Sapte (lenders)
Date closed: August 2006