As well as the six exceptional deals, a number of deals also stood out to GTR‘s judging panel as exemplary in their fields.
Full integration for Cisco
Deal information
Borrower: Cisco Systems
Amount: US$180mn
Mandated lead arranger: Wells Fargo Capital Finance
Participating banks: Bank of China, Citic Bank International, RBS
Tenor: Until credit line is used up
Date signed: June 2010
Wells Fargo Capital Finance provided a US$180mn supply chain finance portfolio accounts receivable purchase programme for Cisco by syndicating more than US$100mn to three banks; Bank of China, Citic Bank International and RBS.
Longer trade terms allow Cisco to support end-user projects that incorporate additional Cisco product.”
The programme will allow Cisco to offer extended payment terms of 90 days to its largest distributors and system integrators in Europe, Asia and Australia.
Steve Hopkins, director of Cisco Capital, comments: “These longer trade terms allow Cisco to support end-user projects that incorporate additional Cisco products, accelerate delayed customer IT spending and enhance working capital for our downstream sales channels.”
Furthermore, Cisco can now mitigate the risk associated with having a large concentration of receivables in designated regions of the world, particularly in Asia.
To complete the programme in the most effective way, Wells Fargo Capital Finance created a direct technology connection to Cisco through a web-based platform that gives full integration between the two organisations.
The web-based platform allows Wells Fargo Capital Finance to automate purchase order level and invoice level payment tracking, reporting and reconciliation, limit credit, check buyer credit quality, automate buyer notifications and send out payment reminders.
Stuart Roberts, managing director and head of supply chain finance at Wells Fargo Capital Finance, says the bank was able to provide a “true win-win solution to Cisco Systems, Inc.”. He adds: “Through this programme we were also able to enhance relationships with Cisco’s system integrators and distributors in the programme, purchase order and credit availability validation, and support sales growth for Cisco through working capital solutions.”
Sweet deal for FBN
Deal information
Borrower: Czarnikow
Amount: US$34mn
Mandated lead arranger: FBN Bank (UK)
Tenor: 364 days
Date signed: June 2010
FBN Bank (UK) structured trade and commodity finance team secured a US$34mn 364-day uncommitted revolving multi-country and commodity stock finance facility with leading sugar merchant Czarnikow in June 2010.
They understand the flexibility that we needed and travelled down to see operations we had on the ground.”
It is the first deal the UK subsidiary of FBN has signed with the sugar trader, and is a move that will help cement the bank as a major player in the structured trade and commodity finance (STCF) market in Sub-Saharan Africa.
The trader can use the financing across a number of different African markets, and although this initial facility carries just a one-year tenor, the basic structure allows for it to be extended as needs change.
“We are delighted to have finalised the facility with one of the largest sugar traders in the world,” comments John Vowell, head of STCF at FBN Bank (UK). “Czarnikow is one of FBN UK’s top tier clients, and it is a great privilege to be a member of their commodity financing banking group”.
Speaking to GTR, William Rook, board director for Africa and the Middle East, at Czarnikow, explains how FBN managed to win over the sugar trader.
“They understand the flexibility that we needed and travelled down to see operations we had on the ground,” he notes.
“FBN has a client-orientated approach which is absolutely critical with the particular geographies that we are dealing with.”
The structure of the deal also aims to help Czarnikow better deal with the volatility in sugar prices. Prices reached a 30-year high in late December 2010, and 2011 is expected to see similar fluctuations.
Against that backdrop, the sugar trader was in need of a facility that could be increased and expanded to different countries relatively easily.
“The price of sugar has doubled, and our business is growing, and they have been very accommodating of that. I can bring in another country into the facility quite easily,” adds Rook.
FBN prides itself on being a bank that will venture into the riskier African markets, and has a greater understanding of the risks involved. This is something that Czarnikow also recognises.
“FBN do their due diligence and get on the ground, and understand that with the right controls and conditions, and if you trade with the right people, supposedly risky markets can be just as sensible option as a whole host of others,” Rook observes.
Egypt moves to self-sufficiency
Deal information
Borrower: Egyptian Refining Company
Amount: US$2.6bn
Mandated lead arrangers: Ahli United Bank, BTMU, Crédit Agricole CIB, HSBC, KBC, KfW Ipex-Bank, Société Générale, Standard Chartered, WestLB
Participating bank: Sumitomo Trust
Multilaterals: African Development Bank, European Investment Bank
ECAs: Kexim, Nexi, JBIC
Law firms: Slaughter & May, Helmy Hamza, Sherman & Sterling, Allen & Overy
Tenor: 17.5 years
Date signed: August 2010
The Egyptian Refining Company finalised a US$2.6bn debt package for the construction of its second-stage oil refinery in the Greater Cairo area.
A host of commercial banks, development banks and export credit agencies joined the project financing, which included Ahli United Bank, BTMU, Crédit Agricole CIB, HSBC, KBC, KfW Ipex-Bank, Société Générale, Standard Chartered and WestLB as mandated lead arrangers.
The majority of the debt has a 17.5-year tenor, with the European Investment Bank’s (EIB) guarantee tranche provided by commercial banks coming with a 15.5 year tenor.
The deal is the largest energy project financing ever in Africa as well as being the biggest commitment EIB has ever made outside of Europe.
Pricing for the loan is split according to tranche with the EIB upfront fee set at 250 basis points (bps), margins ranging from 325bps during construction, dropping to 300bps on completion and rising to 400bps at the back end of repayments.
Japanese export credit agency Nexi’s upfront fee is 175bps with a margin of 175bps, while Korea’s ECA Kexim also had a 175bps upfront fee but with a margin of 195bps.
“This is the largest project financing to date in Egypt involving a number of key debt players including three ECAs, EIB, African Development Bank and commercial banks, participating in a high-profile, multi-source financing,” says Elvira Rozajac, director, project finance, at HSBC.
The recent political protests and ousting of Egyptian president Hosni Mubarak has created delays for all new projects, but it is not expected to thwart the deal.
Katan Hirachand, director of energy project finance, Emea, who led the advisory at Société Générale, says: “The ERC project is a win-win for Egypt providing middle distillates for the biggest market in Egypt (Cairo), backing out expensive imports and providing tangible environmental benefits and extensive employment opportunities.”
An Emerald deal for ANZ
Deal information
Borrower: Emerald Group
Amount: A$475mn (US$474mn)
Mandated lead arranger: ANZ
Participating banks: HSBC, Commonwealth Bank, National Australia Bank, Westpac
Law firm: Norton Rose
Tenor: 18 months, with roll-over possibility
Date signed: November 5, 2010
ANZ led a group of five banks to create an A$475mn (US$474mn) syndicated inventory finance repurchase facility for the Emerald Group.
Emerald provides risk and marketing services to grain growers across Australia, and is recognised as a major player in the country, having purchased about 8% of national grain production in the 2009/10 harvest.
As a result of rapid business growth, Emerald required an increase in working capital to fund seasonal purchases during October 2010’s wheat harvest so that the company could store, market and export the grain during 2011.
As Emerald relies on large seasonal financing requirements, the company sought to establish facilities that scale to the underlying value of the commodity, rather than relying solely on their balance sheet.
ANZ’s solution is unique because such deals usually consist of a number of bilateral facilities with a number of banks and different facility types, operational processes and terms and conditions.
This solution has essentially bypassed the increased administration and operating time and cost by syndicating the deal out as a warehouse finance repurchase facility.
ANZ did this by creating a fixed trust to conduct the sale and purchase of grain with Emerald Group while the other banks in the syndicate became proportional beneficiaries of the trust.
The result means that Emerald now has higher levels of financing for seasonal requirements, financing that is scalable to its supply chain, improved efficiency and lower cost through reduced administration and improved pricing as the structure is Basel II efficient. The structure has allowed Emerald to accumulate 3.5 million tonnes nationally this harvest, bringing 25% growth across the company.
The programme is due to run for a year and a half, though it has the possibility to roll-over as Michael Lim, global head of structured trade finance at ANZ’s trade and supply chain business, explains: “The programme is an 18-month arrangement to match the tenor of the underlying grain pool managed by Emerald on behalf of the grain growers. However, our expectation is that the deal will be renewed annually in line with the Australian grain season, where harvest takes place in October to December each year.”
A problem solved
Deal information
Borrower: Energypac Power Generation
Amount: US$70mn
Sole arranger: Standard Chartered
Law firm: Maxima Legal
Tenor: 15 months
Date signed: July 2010
As sole arranger Standard Chartered closed a US$70mn structured trade financing facility for the Bangladeshi EPC contractor Energypac Power Generation (EPGL), in July 2010.
Successful execution of this transaction has helped the client to achieve a higher orbit of operations.”
The financing supports the construction of a power plant in Bangladesh.
It is the largest ever deal Standard Chartered has closed with a local corporate in Bangladesh as well as being the first time EPGL has used structured trade finance.
The bank opted to use a structured trade finance facility to overcome the issue of taking a US$70mn (equivalent) exposure on a company that only has a turnover of US$28mn.
“The key challenge was to structure a suitable solution (in terms of operational convenience, adequacy of limits), keeping in mind the stringent regulatory restrictions, lack of balance sheet size of the client as opposed to the assessed size of facility,” comments Milan Mehra, regional head of structured trade finance & financial solutions, at Standard Chartered.
“The size of the financing requirement was unprecedented in the Bangladesh local corporate market,” he adds.
The origins of the transaction lay in EPGL’s successful bid for a contract from the Bangladesh Power Development Board (BPDB) to set up a heavy fuel oil-fired 100MW power plant.
Yet, the bank financing EPGL required to carry out the contract was far higher than the level that could be raised via conventional balance sheet lending, given the size of the transaction compared to the group’s balance sheet strength. EPGL needed a bank that could offer a more innovative approach.
Standard Chartered structured a deal comprising a mix of fund and non-fund based facilities.
Part of the performance risk was effectively transferred to Rolls Royce, the supplier of the engines for the power plant.
Payment risk was partly transferred to BPDB (a quasi-government entity) and BPDB’s banks.
Standard Chartered hopes that this deal will spark of a trend for tailor-made structured trade financing solutions in Bangladesh.
“Successful execution of this transaction has helped the client to achieve a higher orbit of operations,” notes Mehra.
Gunvor gets rolling
Deal information
Borrower: Gunvor International
Amount: Up to US$250mn
Mandated lead arranger: Rabobank International
Tenor: Dependent on underlying deals
Date signed: August 2010
Rabobank solely arranged a bilateral facility to finance energy trader Gunvor International’s liquefied natural gas (LNG) and natural gas trading activities, including physical, paper and foreign exchange elements.
The LNG market is relatively new in the energy-commodities finance field, with inherently more complicated logistical processes and hedging structures.”
The credit line is related to a rolling business of 19 deals, and could reach as high as US$250mn.
As the deal is based around these 19 transactions, the facility has no fixed repayment schedule or maximum tenor, allowing for optimum flexibility for the borrower.
Stephan Jansma, global head of energy commodities at Rabobank International, highlights how the bank got over the challenges faced by the deal: “The LNG market is relatively new in the energy-commodities finance field, with inherently more complicated logistical processes and hedging structures when compared with, for example, crude petroleum products.
“This has its inherent impact on the determination of the most suitable finance structure required for a risk-responsible approach, which simultaneously provides our client with sufficient financial room to take on a full string of LNG contracts with a delivery window over a period of time. Through open dialogue with our client’s risk management team we were able to determine the finance structure and scope required to support the significant hedge position as well as the resulting series of physical LNG supplies going into Europe.”
The deal stood out amongst its peers as it demonstrated willingness to structure a deal in an innovative way and for a relatively new commodity, especially as the deal was closed in such close proximity to the aftermath of the global financial crisis, when many banks were drawing away from such transactions.
“To the same extent as the commodity trading houses which decide to diversify into the LNG market attract market attention as innovative players, we feel that banks who decided to follow these innovative players by devising finance structures that are suitably well adapted to the peculiarities of the LNG market are viewed as innovative players as well. We feel proud to see this point being acknowledged by this award,” Jansma adds.
Lift-off for Czech exports
Deal information
Borrower: Republic of Azerbaijan
Amount: €247.025mn
Mandated lead arranger: Komercni Banka
ECAs: EGAP (Czech Republic), Eximbanka (Slovak Republic)
Law firms: Salans and Omni
Tenor: 12 months
Date signed: February 5, 2010
Komerčni Banka (KB) closed a €247.025mn buyer’s credit with the Republic of Azerbaijan for the financing of the reconstruction of the Heydar Aliyev international airport-Markadan-Bildah circular road.
The deal marks the first time that the Republic of Azerbaijan has directly acted as a debtor in a KB deal.
“The project is different from the other KB Azerbaijan-related projects, first of all due to its size. We have never concluded a similar deal before in the Czech Republic,” comments Pavel Wasserbauer, vice-president, export finance, trade and export finance, top corporations, KB.
Handling Azerbaijani risk was one of the biggest challenges facing the Czech bank. “The change of debtor represented higher requirements for the administrative preparation of the loan documentation. The accepting of the state risk on KB’s part implied the acceptance of the Azerbaijani legislation. This task was solved by involving a reputable law firm,” explains Wasserbauer.
With a new terminal being built at the Heydar Aliyev international airport and designed to meet a projected demand of 3 million passengers every year, improving the surrounding transport links is essential.
The deal is structured as an export buyer’s credit, with the Republic of Azerbaijan acting as a debtor, through the ministry of transport, which is the primary obligor. An additional state guarantee is given by the ministry of finance.
Two export credit agencies (ECAs), Czech Export Guarantee and Insurance Corporation (EGAP) and Slovak Export-Import Bank of the Slovak Republic (Eximbanka) were brought in to provide extra risk mitigation.
The €247.025mn deal amount represents 85% of the commercial contract value signed between the Czech company SaZ and the Azerbaijani Azeryolservis.
The structure of the deal also allowed for sub-deliveries from Slovakia, covered by the Slovak ECA Eximbanka, under a reinsurance agreement with EGAP.
StanChart triumphs with Indonesian deal
Deal information
Borrower: Huawei Tech Investment Amount: US$270mn
Mandated lead arranger: Standard Chartered
Participating bank: Bank of China
ECA: Sinosure
Law firms: Hogan Lovells, Ali Budiardjo Nugroho Reksodiputro, Forbes Hare, King & Wood
Date signed: December 20, 2010
Standard Chartered successfully closed a complex medium-term multibank non-recourse receivable purchase facility in Indonesia. The deal saw the purchase of receivables owed by an Indonesian operator to Huawei for telecoms network equipment and installation.
Key to winning the mandate was Standard Chartered’s clear understanding and knowledge of the challenges faced by Huawei.”
China’s export credit agency Sinosure covered 60% of the US$270mn financing.
The deal is unique as the benefits of the policy are not shared equally amongst the banks involved in the deal. Standard Chartered’s Hong Kong branch and Bank of China are only participating in the exposures covered by the Sinosure policy to form a unique hybrid of syndicated and back-to-back funded participations models tailored to meet Huawei’s needs.
“Standard Chartered was the only bank in the market with the appetite and structuring capability to work with Huawei and Sinosure to take enough clean exposure on the operator-buyer to enable Sinosure to cover the balance” says Yen Yen Setiawan, head of transaction banking, Indonesia.
As a result, Standard Chartered could offer Huawei a sizeable facility that covered the full amount of their supply contract while still maintaining the Indonesian offices as the main point of sale for the operator-buyer’s receivables.
“Standard Chartered Bank was able to win the mandate for this deal despite strong competition from several banks, based on the good track record of our delivery of a previous bilateral deal implemented for Huawei,” Setiawan continues.
“Key to winning the mandate was Standard Chartered’s clear understanding and knowledge of the challenges faced by Huawei coupled with our product expertise, as well as our healthy risk appetite along with the strong global relationship we maintain with Huawei.”
According to Standard Chartered, competitor banks took notice of this transaction and have approached the bank to join the facility as and when the deal is expanded in the future.
“This transaction is further evidence of Standard Chartered’s position as leader in trade finance and is likely to lead to future deals of a similar nature, as Standard Chartered places itself to be the preferred international partner for Huawei in this type of transaction,” Setiawan notes.
HSBC cottons on to Benin
Deal information
Borrower: Industries Cotonnières et Associées (ICA) group of companies Amount: €15mn
Mandated lead arranger: HSBC France
Tenor: Up to 360 days
Date signed: January 28, 2010
As sole arranger and lender, HSBC France successfully closed a €15mn cotton financing deal for the Industries Cotonnières et Associées (ICA) group of companies in January 2010.
The deal, structured as a bilateral pre-export financing facility, provides international funding to support ICA’s purchase of raw cotton during the 2009/10 cotton campaign in Benin, while limiting country and production risks for the lender.
ICA, part of the Talon Group, is the second-largest cotton ginner in Benin with a 24% market share.
The company’s aim was to obtain cost-efficient financing to support their working capital requirements within a relatively short timeframe, in order to pay the producers and secure an adequate supply of raw materials.
Given the prevailing market conditions in Africa at the time, local financing was expensive.
As such, ICA sought offshore financing and selected HSBC to arrange the facility based on its existing relationship.
“We closed a few transactions with ICA before this one – but their size was smaller and the structures less elaborate,” says Arnaud Preney, sales manager, structured trade finance at HSBC France.
The structured trade finance solution arranged by HSBC saw the facility secured by pledged inventories and with repayment coming from proceeds of the assigned export contract.
The first drawdown of the facility took place on March 2, 2010 and the credit was repaid in its entirety in late June.
The deal’s structure was tailored to transform a developing country risk into a more acceptable, secured facility with the elimination of transfer risk, convertibility risk and crop risk.
ICA’s ability to export the cotton was the only local risk remaining, and was strongly mitigated by the company’s track record and reputation in the market.
Powering up Jamaica
The Jamaicans of a success
Deal information
Borrower: Jamaica Public Service Company
Amount: US$98.2mn
Mandated lead arranger: Citi
Co-arranger: Mizuho Corporate Bank
ECA: Nexi (Nippon Export and Investment Insurance)
Law firms: Baker & McKenzie, Baker Botts, Clinton Hart & Co., Milbank, Tweed, Hadley & McCloy, Patterson Mair Hamilton
Tenor: 10 years
Date signed: December 2010
Citi was mandated lead arranger and Mizuho Corporate Bank acted as co-arranger for an export credit agency (ECA)-backed US$98.2mn term loan to Jamaica Public Service Company (JPS).
It was an attractive source of long-term financing that was able to help the company lengthen the tenor of debt.”
The 10-year facility will be used to finance both loss reduction and system reliability projects, as well as expanding an existing hydroelectric power plant.
The financing will help JPS achieve a reduction in electricity losses and heat rate by providing resources for upgrading its network by installing smart meters and upgrading or maintaining its aging assets.
Furthermore, the upgrade of the hydroelectric power plant expansion will support the government of Jamaica’s ambitious plans to supply 15% of the country’s electricity needs from renewable sources by 2020.
In the first transaction for its overseas united loan insurance programme in Jamaica, Japanese ECA Nexi is providing 97.5% political risk and 90% commercial risk insurance for the loss reduction and systems reliability projects. Furthermore, Nexi is providing 100% political risk insurance towards the expansion of the hydroelectric power plant under its trade and investment insurance for preventing global warming programme.
“Given the involvement of a Japanese company as a shareholder in JPS, Nexi’s overseas united loan insurance programme was available for the company,” says Yuko Kizu, director, export and agency finance, Citibank Japan.
“It was an attractive source of long-term financing that was able to help the company lengthen the tenor of debt, achieve competitive all-in cost in an otherwise difficult market, increase the financial flexibility of the company and provide financing alternatives,” Kizu adds.
This transaction marked the largest 10-year financing for JPS and led all other creditors in providing the longer tenors needed in the power industry.
Lower debt amortisations permit lower rates to the public.
Sudan Success
Deal information
Borrower: Kenana Sugar Company
Amount: US$50mn
Mandated lead arranger: International Islamic Trade Finance Corporation (ITFC)
Participant: OPEC Fund for International Development (OFID)
Tenor: 12 months
Date signed: August 25, 2010
The International Islamic Trade Finance Corporation (ITFC), a member of the Islamic Development Bank Group, was able to close the first co-financed operation provided by the IDB Group to the private sector in Sudan in mid-2010.
The deal was signed when most financiers were reluctant to close business in the volatile Sudanese region.
Under this co-financing, the ITFC as an arranger and a financier, and OPEC Fund for International Development (OFID) as a financier, extended a US$50mn murabaha financing in favour of Kenana Sugar Company (KSC) in order to import raw and white sugar from different sources worldwide. The deal was signed when most financiers were reluctant to close business in the volatile Sudanese region.
KSC is an agro-industrial company involved in the production, marketing and supplying of sugar and dairy products in Sudan, as well as internationally. “By extending such financing, ITFC supported the sugar manufacturing industry in order to get Sudan recognised once again as the biggest sugar exporter in the region,” remarks Waleed Al-Wohaib, CEO, ITFC.
“ITFC has not only creatively designed this operation; it has supported, along with the other co-financers, the biggest agro-industrial company in the country, and by this, the co-financiers have supported the agricultural sector, representing 27% of Sudan’s GDP, as well as the industrial sector, representing 36% of Sudan’s GDP.”
“ITFC believes that this financing operation is a step forward in its strategy to support and develop the economies of Sudan,” further elaborates Eng Hani Salem Sonbol, deputy CEO, ITFC.
The structure of the shariah-compliant murabaha deal involves the use of an irrevocable commitment to reimburse (ICR), provided by ITFC. This promises to pay the exporter’s bank if it complies with the terms set out by a letter of credit issued by KSC’s issuing bank. The ICR is sent to the exporter’s bank, and this bank can then claim reimbursement from ITFC’s paying agent. Both ITFC and OFID provided US$25mn towards the murabaha.
The financing was granted to KSC on a clean basis as the participants took the direct risk of KSC.
However, a debt service reserve account was set up to mitigate the forex risk since the facility is denominated in US dollars and the repayment is in Euros.
M&S meets demands
Deal information
Initiator: Marks & Spencer
Mandated lead arranger: RBS
Law firm: SNR Denton
Date signed: July 2010
In 2010, UK retailer Marks & Spencer (M&S) selected RBS as a provider of supply chain finance (SCF) for the company’s overseas suppliers.
The supplier finance programme from RBS has given us the ability to look after our supplier network and secure our global supply chain.”
This buyer-led receivables purchase programme enables M&S’s international supplier base to finance their receivables through RBS, thus helping suppliers to improve their working capital and allowing M&S to support their physical and financial supply chain.
Suppliers are able to use MaxTrad, RBS’s electronic trade and supply chain finance platform to benefit from efficient financing rates.
Once fully ramped-up, the programme will involve a network of 300 suppliers in countries including India, Sri Lanka, Hong Kong, Italy, China and Turkey and multiple trading currencies including US dollar, euro and pound. It is the cross-border nature of the deal that sets it apart from other deals in the market.
“This transaction really demonstrates the breadth of experience and geographic coverage of our global transactional services business by delivering a truly cross-border proposition,” says Brian Turpin, head of trade sales, global transaction services UK, at RBS. “The transaction would not have been possible without some fantastic team work across both the RBS and Marks & Spencer teams.”
As with every retailer, M&S was looking to lower risk within the supply chain. RBS was able to achieve this by strengthening the relationship between the retailer and its suppliers through greater collaboration and transparency, and by reducing costs throughout the supply chain.
The programme benefits key suppliers by providing them with an alternative source of funding, lowering the costs of their financing requirements, protecting their trading relationship and mitigating cross-border commercial risk.
“The supplier finance programme from RBS has given us the ability to look after our supplier network and secure our global supply chain,” says Doug Stevenson, deputy treasurer at Marks & Spencer.
Rushing back in
Deal information
Borrowers: Southern Kuzbass Coal Company, Yakutugol, Chelybinsk Metallurgical Plant, Southern Urals Nickel Plant (part of the Mechel group)
Amount: US$2bn
Co-ordinating mandated lead arrangers: ING, RBS
MLAs: BNP Paribas, Commerzbank, HSBC, Natixis, Nordea Bank, Raiffeisen Bank International, Société Générale CIB, UniCredit, VTB Bank
Other participants: Credit Suisse, Morgan Stanley Bank International
Law firms: Linklaters CIS Moscow; Gide Loyrette Nouel Moscow
Tenor: Three years (tranche A) and five years (tranche B)
Margin: 5-6% per year
Date signed: September 6, 2010
Russian metals and mining company Mechel successfully secured a US$2bn pre-export finance facility from international lenders in the second half of 2010.
This successful transaction has confirmed the attractiveness of the Russian metals and mining market for international banks.”
The deal was the largest pre-export financing transaction in the metals and mining sector to close in Russia in 2010.
It was also the first refinancing of Russian syndicated debt restructured in 2009.
Bernard Zonneveld, managing director, global head of structured metals and energy finance at ING: “We are proud to have so successfully coordinated this landmark transaction for Mechel, a company that was affected by the commodity market turbulence in 2009, but has subsequently come out a winner based on its inherent strength and excellent medium term outlook.”
The borrowers are four of Mechel’s most important operating companies representing the steel, mining and ferroalloy segments of the group.
Sander Hansen, director of structured and commodity finance at RBS notes:
“The main challenge consisted of the aligning of the debt requirements of the different Mechel entities with the security position of the lenders. By ensuring that the strongest entities carry the largest tranches, the lenders could get comfortable with the overall structure.”
Ilia Poliakov, managing director, head of Russia/CIS for the natural resources & energy financing group at Société Générale comments: “This successful transaction has confirmed the attractiveness of the Russian metals and mining market for international banks and has opened the door for the refinancing for other major players in the market in 2011.”
Marc Thümecke, co-head, metals & paper, managing director, project & commodity finance at UniCredit, adds: “The successful early refinancing of Mechel has certainly encouraged other Russian companies to tap the loan markets as well.“
Patrick Arnaud, managing director, structured debt, mining & metals, global energy & commodities, at Natixis, is similarly positive about the impact of the deal in the market: “Natixis is pleased to have contributed as MLA and co-bookrunner to the first significant refinancing facility in Russia post-crisis, paving Mechel’s way for future growth.”
International support for Tanzania’s MeTL
Deal information
Borrower: Mohammed Enterprises Tanzania (MeTL)
Amount: US$40mn
Mandated lead arranger: Rand Merchant Bank (RMB)
Arranger: Rand-Asia Trade Finance as agent for China Construction Bank, Johannesburg Branch
Participating bank: FIMBank
Law firms: Deneys Reitz Africa Legal Network, Adept Chambers Tanzania
Collateral managers: Société Générale de Surveillance
Tenor: Annual renewal
Date signed: December 2010
Against the backdrop of growing interest in Sub-Saharan Africa, Rand Merchant Bank (RMB) led a group of African, Chinese and European banks in arranging a US$40mn structured commodity finance transaction for Tanzania’s Mohammed Enterprises Tanzania (MeTL). The deal entails the financing, by way of funded participation by the lenders, of soft commodities imported and exported out of Dar es Salaam, Tanzania, by the borrower MeTL.
The transaction structure facilitates a diverse portfolio of commodities.”
Rand-Asia Trade Finance, acting as agent for China Construction Bank Johannesburg branch, joined South Africa’s RMB as an arranger on the deal, and Malta’s Fimbank was involved as a participating bank. The borrower is a grouping of Tanzanian agricultural, trading and manufacturing businesses, and is arguably the largest owned and managed diversified blue chip corporate in Tanzania.
“The transaction structure facilitates a diverse portfolio of commodities and intentionally funds both imports and exports to reduce local currency risk,” says Gregory Havermahl, head, structured trade and commodity finance at RMB.
The soft commodities include wheat, sugar, maize, rice, pigeon peas, crude palm oil and refined soya oil.
The financing is secured against commodity held in warehouse under collateral management, or held to the order of the borrower through a fixed and/or floating charge, and pending repayment and release of commodity to the borrower.
The imported financed commodity is then sold to end-users in Tanzania and the exported commodity to various end-users in India.
Commodity is purchased from various approved sellers in Indonesia, South Africa, Mauritius and various international commodity traders trading through London and is valued against the applicable exchange on which such commodity is traded.
“The facility provides sufficient working capital for MeTL to expand its operations and take advantage of export opportunities in the region,” says Havermahl.
Flight to funding for Oman Air
Deal information
Borrower: Oman Air
Amount: US$200mn
Mandated lead arranger: JP Morgan
ECA: ECGD
Law firm: Allen & Overy
Tenor: 12 years
Date signed: February 2010
JP Morgan structured a US$200mn 12-year ECGD-backed programme for Oman Air’s acquisition of Airbus aircraft.
Clients like Oman have heard of our previous aircraft transactions and expect to be exceptionally satisfied.”
The transaction marked the first time in a decade that the UK’s export credit agency ECGD worked alongside JP Morgan acting as both lender and arranger.
Oman Air has experienced rapid growth since its establishment in 1993. Starting as a regional player, Oman’s national carrier now operates direct international flights to major global destinations including Europe, Asia and Africa.
In the wake of the financial crisis, airlines found that aircraft financing structures in the securities market were no longer attractively priced, nor as available as ECA-guaranteed loan structures that were used before the economic downturn.
Asif Raza, Mena head of treasury and securities services at JP Morgan, highlights the importance of earning the client’s confidence as being key to winning Oman Air’s business against leading international banking competitors: “We regularly engaged Oman Air until we received an invitation to participate in their request for proposal. The commitment demonstrated by our team and senior management was key to our success.”
Jeremy Shaw, head of Emea trade finance at JP Morgan, adds: “We’ve proved our ability to execute these transactions. Clients like Oman have heard of our previous aircraft transactions and expect to be exceptionally satisfied with our team’s ability to execute and meet their specific needs and timeframes.”
“We’ve long been a leading provider of risk management and financing solutions to clients across the globe and we now bring to these kinds of transactions a wealth of structured finance experience,” Shaw adds.
A first for Pakistan shipping
Deal information
Borrower: Pakistan National Shipping Corporation
Amount: PRs10.3bn (US$120mn)
Mandated lead arranger and structuring bank: Standard Chartered Bank (Pakistan)
Participating banks: National Bank of Pakistan, Faysal Bank, Askari Bank, Pak China, Pak Brunei, Pak Oman
Law firms: Mohsin Tayebaly & Co (lenders’counsel), Rizvi, Isa, Afridi & Angell (borrower’s counsel)
Tenor: 8 years, to be redeemed in 32 equal quarterly payments
Margin: Kibor +220 basis points
Date signed: November 6, 2010
In the first ever local currency ship finance transaction in Pakistan, Standard Chartered arranged a structured US$120mn (Pakistani rupee equivalent) facility coupled with a cross-currency swap to meet a client’s need for US dollar borrowing.
the deal is executed in PRs with a cross-currency swap on top of it to synthetically convert the funding in US dollars.”
The syndicated facility – Pakistan’s largest in 2010 – will see the borrower, the Pakistan National Shipping Corporation (PNSC) use the money to purchase five multi-purpose dry cargo vessels. PNSC is Pakistan’s sole national shipping company.
The deal included the participation of a number of local banks: National Bank of Pakistan, Faysal Bank, Askari Bank, Pak China, Pak Brunei and Pak Oman.
Despite being a public entity, PNSC was able to raise funding without a sovereign guarantee. Given the regular and sustainable source of freight bills receivables from specific refineries, it was decided that a ring-fenced solution involving cash trapping directly from third parties would help PNSC in generating the required credit appetite and at the desired pricing level.
“The client wanted to raise US dollar-based funding to avail cost savings given the Libor/Kibor difference (approximately 13 – 14%),” says Khalid Rashid, head, capital markets at Standard Chartered. “However, due to cross-border and liquidity constraints in foreign currency funding, the deal is executed in PRs with a cross-currency swap on top of it to synthetically convert the funding in US dollars.”
Standard Chartered advised PNSC that potential investors may not be comfortable with the deal as a plain ship finance transaction, as they may be unfamiliar with ship financing, and the long tenor (eight years).
Instead, the bank suggested that investors may be more at ease if PNSC were able to demonstrate top-line support for the facility in the form of current or existing cash flows routed through an account controlled by the bank.
“We were able to identify a cash flow stream that will provide the right amount of credit enhancement to the investors,” says Imran Ahad, head, OCC, Pakistan at Standard Chartered.
Confident sailing for Panama Canal
Deal information
Borrower: Grupo Unidos por El Canal (GUPC)
Amount: US$400mn
Arranger: Scotiabank
Tenor: 3.6 years and 3.8 years
Date signed: July 2010
Scotiabank leveraged its AA credit rating and presence in Panama to win the mandate for a US$400mn, dual tranche standby letter of credit transaction with GUPC for the construction of the third set of locks for the Panama Canal expansion.
Many multinational banks may have the capacity that we have, but they do not have branches in Panama.”
The first 46-month US$300mn tranche closed at the very end of 2009, with the second 44-month US$100mn tranche being finalised in July 2010. The contract covers the design and construction of two lock complexes, one on the Atlantic side and the other on the Pacific side of the canal. Each complex consists of lock structures themselves, as well as associated buildings, facilities and systems required for their operation and maintenance.
To meet the contract obligations, GUPC had to provide an advance payment guarantee to the Panama Canal Authority to guarantee the advance of funds.
Such a guarantee could only be provided by banks that met specific criteria established by the authority relating to capitalisation, credit rating and local presence in the Panamanian market.
Scotiabank was one of the few banks which met these requirements and succeeded in winning the contract.
“The negotiations were comprehensive to ensure the customer’s contractual requirements and timelines were met,” explains Eric Naggiar, director of Western Europe and Sub-Sahara African, trade finance and financial institutions in Scotiabank’s London office. “We needed to examine every aspect of the deal from both the customer’s perspective as well as for Scotiabank.”
“Many multinational banks may have the capacity that we have, but they do not have branches in Panama,” adds Alberta Cefis, executive vice-president and head, global transaction banking.
“It was a combination of Scotiabank’s established global trade finance expertise, rating and presence in Panama that helped win the deal. We understand the importance of people on the ground that know the market place and can assess the situation at a fundamental level. ”
The Panama Canal expansion is an eight-year US$5.2bn project. GUPC has been awarded the largest single contract of the expansion, worth US$3.1bn.
Simplicity oils deal for Petrobras
Deal information
Borrower: Petrobras International Braspetro
Amount: US$300mn
Mandated lead arrangers: BNP Paribas, BBVA, Crédit Agricole CIB
ECA: K-Sure
Law firm: Clifford Chance
Tenor: 12 years
Date signed: July 9, 2010
A subsidiary of Brazil’s state-owned petrochemical firm Petrobras received US$300mn for the acquisition of a drillship built by Korea’s Samsung Heavy Industry.
The need for a quick execution was the most challenging issue for our client and then a corporate approach was more efficient than a project finance one.”
BNP Paribas, BBVA and Crédit Agricole CIB joined the deal as mandated lead arrangers in an innovative structure which saw Petrobras subsidiary PIBBV receiving financing on a corporate basis rather than a project finance transaction.
This meant that a large security package and high transaction costs were bypassed, and allowed the deal to close within three months of the initial discussions between the banks and PIBBV in Rio de Janeiro.
Before the deal was completed, a number of banks had previously attempted to structure the deal as a project financing with limited or no-recourse, which would have made the structure significantly more complex and expensive and would have taken longer to close.
“The need for a quick execution was the most challenging issue for our client and then a corporate approach was more efficient than a project finance one,” says Henri d’Ambrières, global head origination, export and trade finance, at Crédit Agricole.
Furthermore, Korea’s export credit agency K-Sure provided 80% political and commercial risk cover for the deal.
This is the first time that K-Sure has supported a transaction in Brazil, and saw a memorandum of understanding signed between the ECA and Petrobras which could lead to future collaborations.
“BNP Paribas wanted to explore the corporate-based route and sold this possibility to Petrobras. As our Seoul-based team knew the K-Sure representatives very well, we leveraged the flexibility of K-Sure and the willingness of the ECA to work with Petrobras,” says Georges Curey, for the BNP Paribas export finance team based in São Paulo.
Law firm Clifford Chance advised the mandated lead arrangers on the legal aspects of the transaction.
Initial inquiries for the deal actually started in 2006, when Samsung Heavy Industry signed a shipbuilding contract with PIBBV for the supply of a deep-water drill ship.
Nedbank Capital props up African cotton
Deal information
Borrower: Plexus Cotton
Amount: US$10mn
Mandated lead arranger: Nedbank Capital
Collateral Manager: Drum Resources
Law firm: Nedbank Capital Legal plus local law firms in Mozambique and Malawi
Tenor: 1 year
Date signed: July 9, 2010
In the aftermath of a downturn in the world cotton market, Nedbank Capital’s global structured trade and commodity finance (GSTCF) team successfully arranged and funded a US$10mn cotton financing facility for Plexus Cotton – one of the largest cotton traders in the world.
Nedbank’s challenge was to preserve its title to the cotton all through these different stages in two totally contrasting legal jurisdictions.”
The facility was a revolving uncommitted collaterally managed facility to finance Plexus’s cotton lint purchases from its African subsidiaries in Malawi and Mozambique for sale to South African, European and Far Eastern off-takers.
In freeing up Plexus’s working capital and allowing Plexus to be able to pay subsidiaries sooner, the facility was structured to relieve cash flow constraints on Plexus and the subsidiaries.
Barring certain variations, the deal was a renewal of a facility that Nedbank Capital closed in 2009, which saw the bank finance Plexus’s entire Mozambique cotton output. The inclusion of the Malawian leg was a new feature in the 2010 deal, which had great implications for the bank’s security over the commodity in taking on the new country.
The new facility encompassed two distinct facility agreements in the two countries and included four collaterally managed sites, with stock shipped from two different exit ports.
“Our main problem was to ensure that Nedbank’s security over the cotton always remained intact, as the Malawi cotton pledged to Nedbank had to pass through two vastly different legal jurisdictions – Malawi and Mozambique,” says Sekete Mokgehle, Nedbank ‘s head of GSTCF.
Loans to Plexus were made at the cotton gins in Malawi against the cotton as collateral. Because Malawi is a landlocked country, the cotton then had to be trucked to ports in Mozambique for eventual shipment to off-takers.
“Nedbank’s challenge was to preserve its title to the cotton all through these different stages in two totally contrasting legal jurisdictions,” explains Mokgehle.
Don Oliphant, director at Drum Resources, the deal’s collateral manager, comments on the success of the deal: “The professionalism of the Plexus staff in both countries certainly contributed greatly to the success. It also made the management and control over these long distances easier.”
Flying high
Deal information
Borrower: TAAG Linhas Aereas de Angola
Amount: US$212.135mn
Mandated lead arranger: HSBC
ECA: US Ex-Im
Tenor: 540 days from sight (letter of credit maturity); 10 years (ECA loan maturity)
Date signed: February 2010
HSBC closed a US$212.135mn letter of credit (LC) pre-payment facility on behalf of TAAG Angola Airlines (Linhas Aereas de Angola), the national flag carrier of Angola, in February 2010.
This substantial letter of credit pre-payment facility was underwritten by HSBC in a climate of global economic uncertainty and turmoil.”
The deal reflects the bank’s commitment to trade finance in Sub-Saharan Africa.
This is particularly evident given that the aftermath of the financial crisis has caused many banks to reassess where they take risk, with many eschewing the riskier opportunities offered by the African markets.
The structure of the deal helps to demonstrate how, via the use of export credit agencies and traditional trade finance tools, a bank can successfully handle African risk.
“This substantial letter of credit pre-payment facility totalling in excess of US$200mn was 100% underwritten by HSBC in a climate of global economic uncertainty and turmoil continuing throughout January 2010, highlighting HSBC’s commitment to accommodation of key client or strategic trade business in Sub-Saharan Africa,” comments Geoff Sharp, managing director, global banking, export credit & specialised finance at HSBC.
The structure of the deal worked whereby HSBC confirmed, underwrote and syndicated letters of credit issued by Banco de Poupanca e Credito (guaranteed by the Angolan ministry of finance), incorporating 540-days LC post-shipment financing. The deal was payable either upon the commencement of a US Ex-Im backed 10-year facility (also lead arranged by HSBC), or upon the 540-day maturity date.
A total of three down-payments of approximately US$70mn each were made between February and August 2010. Credit concentration exposure or risk was partially mitigated through selected syndication partners, including European and African banks, boutique trade finance houses, insurance and emerging market hedge funds, while also ultimately secured against a committed long-term US Ex-Im-backed facility arranged by HSBC’s export finance team.
The pre-delivery payments were made in respect to the purchase of two Boeing 777-300ER aircraft by the Angolan airline to be delivered in late 2011.
TAAG has been one of the most profitable Sub-Saharan African carriers, and one of the few to embark on the purchase of new aircraft.
ECA attraction for Tobolsk Polymer
Deal information
Borrower: Vnesheconombank (VEB) Amount: US$1.4bn
Mandated lead arranger: Crédit Agricole CIB, Deutsche Bank, ING, Intesa Sanpaolo, KfW Ipex-Bank, Société Générale, SMBC Europe
Participating bank: Bank of China
ECAs: Euler Hermes, Sace
Law firm: Allen and Overy
Tenor: 13.5 years for ECA-backed facility, 5 years for commercial facility
Date signed: January 22, 2010 (Hermes) and July 2, 2010 (Sace)
VEB successfully closed the largest project financing in Russia during 2010.
This is a truly landmark transaction for many reasons.”
The combined 13.5-year ECA covered US$1.2bn financing and five-year commercial US$220,000 financing will go towards the construction of a polymer plant in Tobolsk, by Sibur, Russia’s largest vertically integrated petrochemical company.
Crédit Agricole CIB, Deutsche Bank, ING, Intesa Sanpaolo and Société Générale joined the deal as initial mandated lead arrangers, and KfW Ipex-Bank and Sumitomo Mitsui Banking Corporation Europe as mandated lead arrangers.
Italian export credit agency (ECA) Sace and Germany’s ECA Euler Hermes offered guarantees for US$686.2mn and US$533.8mn respectively.
Construction of the complex has already begun, with major capital equipment delivered until the final quarter of 2012.
Engineering firms Tecnimont and Linde will be providing equipment for the mega-project.
On completion, Tobolsk will boast the largest polypropylene plant in Europe, with an installed capacity of 500,000 tonnes per year.
“The ECA-covered financing provided the optimum, flexible funding solution both in terms of pricing and tenor. Indeed, a multi-source ECA financing solution was the ideal financing solution for the project as it is combined with non-ECA covered loans for other non-ECA eligible costs and thus contributes favourably to the project economics”, says Klaus Michalak, global head of Deutsche Bank’s structured trade and export finance team.
“This is a truly landmark transaction for many reasons,” explains Anna Titova, director structured export finance at ING. “[It is] one of the largest ECA-supported transactions in Russia for many years. Furthermore, VEB’s involvement in this transaction underlines their role as the development bank for the Russian economy.”
Hirokazu Okado, manager, structured finance at SMBC Europe, adds: “The agreements were signed in 2010, but the discussion among all parties was started in H1 2009, when the market was very unstable and banks were nervous about long-term financing.”
Warm reception for tea deal
Deal information
Amount: US$25mn
Client: Unilever
Joint co-ordinating mandated lead arranger: Barclays Corporate
Law firm: Fiona Fula, legal counsel, Barclays Corporate (led the legal work supported by DLA Piper on local supplier agreement validation)
Date signed: September 2010
Barclays Corporate closed a US$25mn supplier finance programme with Unilever to support the company’s tea purchases from primarily Kenya and South Africa.
Structured on an evergreen basis, the buyer and supplier agreements are arranged with flexibility to follow growth trends.”
The deal demonstrates how via Barclays supplier finance, a major corporate can improve the efficiency of its supply chain as well as provide its suppliers with access to lower cost financing, compared to locally available products.
“The real story here is how Unilever combined its need to modernise supplier payment processes with its passion for sourcing best quality tea from their traditional suppliers, explains Maria Malinowska, director of supply chain finance sales at Barclays Corporate.
“Barclays supplier finance allowed Unilever to combine disparate objectives, such as providing early payment and managing costs in their supply chain,” she adds.
Currently US$25mn is available on a revolving basis with flexibility to accommodate procurement requirements and seasonal fluctuations across a number of regular suppliers.
“Structured on an evergreen basis, the buyer and supplier agreements are arranged with flexibility to follow growth trends,” adds Malinowska.
Barclays Corporate was able to leverage its global presence to enhance the supplier on-boarding experience by involving local market expertise in the process. Barclays Kenya worked with local Kenya tea suppliers to facilitate quick adoption of the programme. “This was invaluable in winning the confidence of suppliers through local face to face interaction and in creating a robust operating structure for the facility,” Malinowska remarks.
Zhengcai draws in largest-of-kind Rmb deal
Deal information
Borrower: Zhejiang Zhengcai Trading Co.
Amount: Rmb800mn (US$121mn)
Mandated lead arrangers: China Everbright Bank, Deutsche Bank, Société Générale
Lead arranger: Evergrowing Bank
Law firm: King & Wood, Lenz & Staehelin
Tenor: 3 years
Date signed: November 24, 2010
Zhengcai Trading received a facility that was exceptional in a number of ways; it was the largest renminbi (Rmb) structured commodity finance syndication in 2010 and it was also the first onshore structured commodity trade finance deal in China for mandated lead arranger Deutsche Bank.
We brought in two Chinese banks who were not traditionally active in the structured trade finance space into the deal.”
Zhengcai Trading is the flagship trading arm for non-ferrous metal products for the Hangzhou Jinjiang Group Co, which is one of the top alumina producers in China.
The facility was entered into as a three-year off-take contract to supply alumina to Glencore’s Chinese operation.
To fulfil the delivery obligations, Zhengcai sourced alumina from two other subsidiaries of its parent group; Coalmine and Xingan, under a back-to-back supplier contract.
The facility was arranged to provide Zhengcai with medium-term working capital financing, to be used as a trade prepayment under the supply contract to Coalmine and Xingan.
Alumina cargo will be delivered on a monthly basis and the sales proceeds received from Glencore China will be used for monthly debt service after a six-month grace period.
The facility benefits from a comprehensive security package, including a pledge over account receivables under the off-take contract, a pledge over deposit in the collection and top-up reserve accounts, the assignment of Zhengcai’s rights under the supply contract and a performance guarantee from Glencore International guaranteeing Glencore China’s obligations under the off-take contract.
Frank Wu, head of structured trade and export finance, China, at Deutsche Bank, says: “This is one of the very few structured commodity trade finance deals closed in the Rmb syndication market with participation from both international and Chinese banks.”
“In an effort to promote collaboration between Chinese and foreign banks, we brought in two Chinese banks who were not traditionally active in the structured trade finance space into the deal. We believe that such collaboration contributes towards the further development of an onshore structured trade finance market in China.”
