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GTR News Brief: Episode 1

Two former BNP Paribas commodities bankers have launched Commodity Trade Invest (CTI), a financial intermediary between investors and small to medium commodity traders.

Jacques Béglé, BNP’s former co-head of commodity trade finance, and Philippe Steiner, former commodity trade finance relationship manager, left the bank last June (2012) due to a perception of reduced opportunities following the credit crunch and ahead of the implementation of Basel III.

“We left the banking system because there was, in our opinion, no real future to develop trade finance activities with small to medium-cap trading companies. They are looking for alternative ways to finance their business and we think that we can help them do it by tapping investors, whether individuals, funds or even corporates with excess liquidity,” says Béglé, the firm’s president.

He tells GTR that CTI will not have any particular sector or geographical focus – though it will use its founders’ expertise and contacts in the CIS region to begin with – but will concentrate its efforts on small to medium firms that struggle to get bank financing, despite the much-hyped return of French banks to the commodities market.

“French banks are coming back, however they are targeting the big trading houses, located in Switzerland and abroad. They are either granting direct bilateral loans to these trading houses, or offering them capital markets solution with medium-term tenors of three to five years at Libor plus 2-3%, which is a good return but not really secured by the underlying goods, nor it is short-term credit,” he says.

Steiner, CTI’s vice-president, does not believe either that the return of French and other banks to the commodities arena will fill the funding gap for smaller traders. “Banks all want to go back to the commodity business, but they have raised their criteria when developing relationships for such type of finance. For example, most banks set a minimum equity level of around US$5mn to start doing business with a company. This prevents a lot of small to mid-cap traders from accessing bank credit.

“Different banks have different criteria in place such as minimum credit revenues yearly cap (US$200,000), but they do have them, and I don’t think the criteria will become more flexible in the future, so the small to mid-cap segment will always need alternative funding solutions.”

The firm will co-operate with trade finance banks in the lending operations it will structure for the account of investors, as they involve international credit instruments handling such as irrevocable documentary credit, stand-by letter of credit or performance bonds, “for which [it has] no other choice than to get the support of a bank tooled for such services”.

“Nevertheless the role of the bank will not be a trade lending one but only a trade servicing one which means that the investor will keep all credit securities over the financing (pledge over goods/assignment of sales receivable),” adds Steiner.

“We have seen concrete interest from funds wanting to invest in our short-term commodity collaterised loans products we named ‘SCOLs’, and we also have a lot of concrete demand from traders in the energy and other fields that are turning to us to fill their financing needs.”