Sole mandated lead arranger, bookrunner, underwriter and facility agent Deutsche Bank closed a four-year US$180mn structured commodity financing for two mining companies, Madneuli and Quartzite, in Georgia in July 2007. The deal is notable due to it being the first syndicated structured commodity financing to close in the Caucasian republic of Georgia.
The deal also features an unusual financing structure, whereby the single financing facility is repaid via two commodity producers.
“This was a dual commodity transaction,” says Kris van Broekhoven, director of structured commodity trade finance at Deutsche Bank in London. “Repayment is supported by exports of two different commodities from two separate exporters – JSC Madneuli and its sister company LLC Quartzite.” Madneuli produces copper concentrate and its sister company produces quartzite.
The loan is further assisted by a security package that hypothecates copper and gold exports and collects the revenues in an account located outside Georgia. The facility carries a tenor of four years and pays a margin of 300 basis points over Libor.
Due to the lack of double taxation treaties in Georgia, the deal has a conduit structure with, in this instance, a Dutch special purpose vehicle established as the borrower.
In addition, the legal documentation for the deal was structured in such a way that the lenders can automatically benefit from commodity price hedges when executed.
“This aspect of the structure made the deal particularly attractive from our point of view,” says Van Broekhoven. “And the purpose of the loan is also quite novel. This facility represents acquisition financing structured in the manner of a pre-export finance deal.”
The proceeds from the deal were partly used to finance the acquisition of Sterlite Gold, a subsidiary of Vedanta Resources that holds significant gold deposits in Armenia.
Madneuli is a mining company specialising in copper production and based in Tblisi, Georgia. It was established in 1994, privatised in 2005, and accounts for around 10% of the country’s exports. Quartzite is a joint Australian-Georgian enterprise specialising in gold mining and 50% owned by Madneuli’s parent company, Prominvest Corporation.
Madneuli and Quartzite
Mandated lead arranger: Deutsche Bank
Tenor: 4 years
Law firm: Denton Wilde Sapte
Date signed: July 2007