In an innovative funding solution for African exports, South Africa’s Rand-Asia Trade Finance closed a US$40mn pre-export financing facility in favour of commodities trader Trafigura at the end of last year.

The transaction finances the export of refined metals and minerals from the Democratic Republic of Congo (DRC) and Zambia to China. The deal entails the financing of the non-ferrous concentrates (specifically copper and cobalt concentrate) in approved warehouses in either Lubumbashi or Kolwezi (in the DRC) or Ndola (in Zambia).

The transaction is secured by the commodity, which is used for determining the funded value based on mineral content confirmed by an inspection agent.

“Due to change in composition of bulk material through the cycle, a solution which would not unduly complicate the administration of the transaction was required. To this end an innovative system of tracking ‘moisture content’ was devised,” explains Gregory Havermahl, fixed income, currency and commodities at Rand Merchant Bank (RMB) in Johannesburg.

Financing will remain in place through the logistics chain of the commodity until it is ready ex-warehouse in Johannesburg or Durban to be delivered into the Chinese port contract the borrower has entered into.

Repayment will occur before the release of the commodity from the South African warehouse or custody by the borrower.

Rand-Asia’s Borjana Keown notes that the most challenging part of putting the transaction together was complying with the relevant statutory requirements through three different jurisdictions in terms of ensuring the lender’s security interest in the goods financed, while at the same time not being too prescriptive to the borrower and following their existing trade flows.

RMB’s Havermahl comments: “The multi-jurisdictional nature of this financing structure takes into account the jurisdiction through which the commodity moves, the nature of the commodity itself, and the robustness of the counterparty, to provide a structured commodity offering which is innovative and yet fairly easy to implement both for the client and the financiers.

“The transaction combines structured commodity finance with a strong corporate underpinning. Notable commodity finance risks are the absence of traditional collateral management as well as a fair amount of logistics risk.”

Havermahl adds that security interests are registered over commodity in warehouses in the DRC, Zambia and South Africa. Because the commodity financed is liquid and exchange traded, the facility structure contains a mark-to-market clause which is affected if the value of the commodity drops.

As lead arranger on the transaction, Rand-Asia acted as agent for China Construction Bank, Johannesburg Branch (CCB).
Rand-Asia has a joint venture agreement with CCB, the purpose of which is to jointly market and manage structured trade and commodity finance with a strong focus on China bilateral trade.

“The value of this deal lies in the fact that this was the first commercial transaction by CCB – Johannesburg branch of this nature to be engaged directly from source in the DRC providing pre and post-shipment finance up to delivery in the People’s Republic of China,” says Rand-Asia’s CEO Eric Finaughty.

“CCB has the capacity to provide liquidity to this form of commerce and the tri-partite alliance that has been created will lead to more of this type of finance transactions,” he adds.

Co-arranger for the deal, Rand Merchant Bank (RMB) – a division of First Rand Bank – together with CCB jointly entered into a strategic cooperation agreement in July 2009, focused on growth opportunities in the African continent.

Nicolas Konialidis, global head of structured trade finance at Trafigura, comments: “The transaction introduces two new banks to Trafigura whilst being secured by goods in warehouse, goods in transit and receivables in three strategic jurisdictions for Trafigura’s non-ferrous business growth.”
Deal information

Borrower: Trafigura
Amount: US$40mn
Mandated lead arranger: Rand-Asia Trade Finance acting as agent for China Construction Bank
Co-arranger: Rand Merchant Bank
Law firm: Eversheds
Tenor: Annual renewal
Date signed: December 9, 2009