French bank BNP Paribas has become the first bank to sell a bundle of commodity trade finance (CTF) loans to investors.
Securitising debt and selling it on to investors is common in other areas of finance as a means of servicing clients while shrinking the size of your balance sheet. This is understood to be the first occurrence in the field of CTF.
The initial transaction on the bank’s Lighthouse platform (technology developed to allow BNP to repackage transactions as a distributable asset) is valued at US$131.6mn in total. The bank has retained US$6mn, with fund manager Lord Capital taking a junior piece of US$5mn. The remaining debt – US$115.6mn – has been sold to an anonymous asset management company. The bundle is understood to contain portions of loans made by BNP Paribas to commodities traders for oil, ferrous or non-ferrous metals, coal and fertilisers.
GTR understands that BNP Paribas started planning this transaction in 2009 as a response to the financial crisis. The deleveraging of French banks – previously so dominant in the commodities sectors – has been widely-reported. By securitising some of its CTF portfolio, the bank hopes to be able to continue to provide loans to its clients, while holding as much liquidity as possible, thereby ensuring compliance with incoming Basel III legislation.
The launch of the product has also come as a response to a change in the commodities market. With the ‘shale gas revolution’ in the US and the shift in growth policy currently being managed in China, demand for global commodities has changed. Gabriel Vaduva, deputy head of energy and commodity distribution solutions at the bank and the person managing the origination of the product, tells GTR that there’s been a “rearranging of the tectonic plates of commodities trading”. The implication is that those involved in the sector are more open to new ways of obtaining funds and that banks have, as a result, had to become more creative.
The bank confirms that there are other transactions in the pipeline, but is unable to comment further. It’s also thought that the product may be rolled out across other areas of trade finance. This, however, will be completely demand-driven.
At this stage, BNP Paribas is keen only to include institutional investors – but we’ve been informed that the bank is not keen to involve hedge funds or commodity traders in any of its transactions.
Whereas a single, widely-syndicated loan is geared towards the buy-side, the bank views the sell-side orientation of its Lighthouse platform as one of its strongest points. “You can offer different issuances that are tailor-made for a specific requirement,” explains Georges Duponcheele, head of banking solutions, private side. “The investors drive the type of transactions we can do.”
For instance, based on investor demand, the bank may be able to securitise a portion of a cargo of oil, allocating it to those that wish to invest in it. Rather than the anonymous securitised bundles sold by fund managers, there is visibility on both ends of the transaction. The portions of the assets being sold are identified and tracked, whereas the bank says it is in extended dialogue with potential investors long before the transaction is closed.