Commodity trading giant Olam has secured a three-year, US$350mn digital-linked revolving credit facility (RCF), the pricing of which will be reduced if it meets certain digital improvement targets.
Seven banks are participating in equal parts in what Olam says is the world’s first-ever digital-linked financing. They are BBVA, DBS Bank, First Abu Dhabi Bank, JP Morgan, Mizuho, Natixis and Standard Chartered. BBVA is also acting as digital co-ordinator and facility agent. Proceeds will be used to refinance existing loans of Olam and its subsidiaries.
An independent company, the Boston Consulting Group, has been brought in to review pre-set digital performance targets each year, using its proprietary ‘digital acceleration index’ methodology. This assesses Olam across four digital building blocks: business strategy driven by digital; digitising the core; new digital growth; and enablers. In practice, these building blocks entail digitisation of all business aspects, across operations, support functions and customer offering.
Should Olam meet all of those targets, it will see a reduction in the pricing, which has not been disclosed. GTR has learned that the initial all-in pricing for the facility is consistent with Olam’s previous financing of a similar tenor – that is, market rate for an RCF.
“We are delighted to be a part of this pioneering effort along with our banking partners, to launch this first-of-a-kind facility that links the interest rate on the loan to achieving measurable annual digital improvement targets. This financing can be a good template to drive the agriculture sector’s digital transformation,” says Shekhar Anantharaman, Olam’s executive director and group COO.
This digital loan has many similarities to the growing number of green loans, where corporate and borrowers lay out a sustainability strategy and in many cases submit to third-party sustainability audits in order to achieve favourable pricing. Indeed, in March last year, Olam signed a similar, US$500mn RCF agreement, which contemplated reductions in the base interest rate if the firm achieves 50 environmental criteria.
For BBVA, which has also been active in the green loans space, digital transformation targets are another way to drive sustainable growth among the companies it finances. “We believe that companies that undertake a digital transformation will be the winners in their sector in the long term,” says Ricardo Laiseca, the bank’s head of global finance. “Digitisation translates into greater competitiveness and profitability, which will allow these companies to stay ahead of the competition.”