Commodity trade finance (CTF) bankers have spoken of the diversity of lenders appearing in the market this year.
Speakers at the Loan Market Association (LMA)’s annual syndicated loans conference in London told the audience and GTR that increased competition, combined with more liquidity in the market and overcapacity, has led to a squeeze on pricing across the commodities board.
In recent months, bulge bracket investment banks have appeared on syndicated commodity loans as they attempt to gain a slice of the pie and extend further their relationships with clients.
John MacNamara, global head of structured commodity trade finance at Deutsche Bank, warned that the trend of deal arrangers taking their clients’ deals into syndication is unwelcome. Syndication, he opined, should be kept to the specialists.
Earlier this year, there was a large revolving credit facility (RCF) refinancing transaction that failed to launch. There were 30 to 40 banks involved and the sponsor was a large, well-known commodity trader.
The deal flunked, however, due to the mismanagement of those structuring it – with the implication being that it wasn’t conducted by syndication specialists.
There has been a huge volume of RCFs in the market since 2008 and while the facilities aren’t expected to disappear, speakers anticipate that they will become smaller.
It’s thought that banks have turned a corner over the past year. In the post-2008 environment, RCFs were necessary due to the sluggishness elsewhere in the market. Speakers suggested that banks don’t need this business as much as they did five years ago.
The market has also been flooded with non-bank lenders. Trade finance funds have, in recent years, been looking for entry positions into project, infrastructure and commodity finance deals.
Insurance firms are operating their own origination teams and pension funds are looking for deals too – but only if the pricing is in double digits. Many bankers, however, think that relationship banks are able to offer clients better value than institutional investors, but warned that they should be willing to collaborate.
Overall deal volume in the commodity space is down, but regional banks represented at the event spoke confidently of growing their lending portfolio over the next 12 months.
Adam Shepperson, the head of structured commodity and trade finance at Ecobank, said that his organisation’s flexibility has allowed it to pick up deals that bigger banks aren’t willing to fund.
Outside of the two large ‘elephant’ transactions completed over the past month (Sonangol and Cocobod), western banks have been reluctant to get involved in many African transactions. But for the likes of Ecobank and Standard Bank, those deals that fall just below this level have offered much greater yield.
Speakers nominated Nigeria’s banks as epitomising the growing legitimacy of African banks in trade. The sector is liquid and well-regulated – with a number of large US$500mn deals being done this year.
The sentiment among those involved in the CTF space is that the growing depth of the African banking market shouldn’t be underestimated.