Still a few players short

There has been a lot of talk about the lack of sufficient liquidity to support the burgeoning need for commodity finance, but will the talk translate into effective means of plugging the gap, GTR editor Rebecca Spong asks.


The deleveraging seen across the European banking sector has resulted in many of the traditional players in commodity and structured commodity finance retreating from the market.

Already eager to fill this gap left by Europeans are the US banks and the Japanese banks. In late February, BNP Paribas sold Wells Fargo its North American energy portfolio.

But despite their enthusiastic entry to the market, there is still a feeling that there will be dearth of financing in the future. Oil traders have suggested recently that oil prices could reach heights of US$150 a barrel, meaning the oil industry alone will need billions of US dollars to support it.

The latest attempts to plug the liquidity gap include news that BNP Paribas is planning to launch a trade finance fund. International press reports this week that Jacques-Olivier Thomann, managing director of the French bank’s Geneva office, told delegates at conference that the bank was looking at various options aimed at creating a triple A-rated securitised trade finance asset that could bring a fresh supply of liquidity into the market.

Thomann emphasised that BNP Paribas was not the only bank looking at such options. Trading companies are also examining their options, and Trafigura via its hedge fund arm, has set up trade finance-specific fund.

Recently at a roundtable in Dubai following GTR’s annual Middle East conference, one of the participants observed how increasingly non-traditional lenders are entering the market to support the continuing demand for finance.

“Traders, however don’t stop, their businesses don’t stop, they survive on continuous trade flows and in order to thrive they have to find new ways of doing business,” he explained.

“We have been told that credit lines were and are still available from the traditional financial institutions, however the cost and access to these lines of credit became increasingly difficult and cumbersome, and compliance issues are very high.”

He said that traders will perhaps maintain some core vanilla business with banks, but for other financing needs they are seeking out alternative sources of funding.

“I believe that there is a huge market that a lot of traditional banks are missing because they are just unable to service this market due to the constraints of their business.”

Just looking at the delegates attending the Middle East conference gives you an idea of how these non-traditional players are carving out market share. The boutique trade finance firm, Falcon Trade Corporation is looking to increase its Middle East business and is reporting ever-growing profits.

Similarly the Dubai Multi Commodities Centre (DMCC) is looking to pick up the slack left by the larger banks and launched a new electronic system that provides inventory-based financing for commodity trade flows during the week of the conference And there are many more non-traditional participants looking to carve out some market share.

The acute need for financing has been further highlighted by the results of a recent survey conducted by Norton Rose which concluded that the agri-commodities industry specifically will need a substantial level of financing to support trade flows, investment projects and acquisitions.

According to survey respondents, while traditional forms of finance, such as trade and commodity debt financing will continue to play an important role in supporting the agri-industry, many believe that sovereign wealth funds and private equity funds will play a larger role in the future.


Do you think there has been sufficient effort to boost liquidity?

Are any of the proposed new efforts to securitise trade finance assets particularly unique?

How can you make trade finance assets an attractive asset class to investors?