RLPC-Commodity traders target pools of liquidity

LONDON Mon Oct 15, 2012 1:29pm BST

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LONDON Oct 15 (Reuters) - The continued strong support for commodity trading company loans underscores the enduring appeal of a sector that in a market dominated by club loans and self-arranged deals represents the last bastion of truly syndicated loans. More important, the sector has become a significant source of business for lenders in a year of depressed loan volumes.

However, in response to more challenging times, which have seen many international banks under pressure to deleverage, commodity traders have begun to strategically target specific pools of liquidity around the globe to diversify away from an over-reliance on their existing relationship bank groups.

The mix of shorter-term maturities and drawn debt - rare in a market that has seen a lot of borrowers turn to the bond market to source their drawn funding needs - as well as the promise of a steady stream of ancillary business, means that commodity trader loans remain attractive to banks and provide a regular stream of business for syndications desks.

A number of recent deals across the globe have helped stress both the importance and attraction of the commodity trading sector to banks.

NEW DEALS

Last week, Swiss oil and energy trader Gunvor launched syndication of its $800 million European loan facility, while compatriot Vitol completed the refinancing of its core loan facility. The deal extends the maturity of a $5.22 billion, three-year facility by one year to October 2015, while also signing a new $782 million, 364-day facility that was increased from $350 million.

A group of 42 banks joined the 15 mandated lead arrangers and bookrunners on the deal, including lenders from Asia. As the majority of the financing was an extension, Vitol was able to keep pricing down.

Ubiquitous loan market player Glencore is in the market for two refinancings that will replace a $1.2 billion, 364-day committed bonding facility and a $1.5 billion committed secured borrowing base facility. Glencore has already raised more than $17 billion from the loan market this year, but lender appetite for the name is showing no signs of abating.

"Commodity firms have certain material requirements and have learnt to use ancillary business to attract lenders on a global scale. They have started to specifically target regions such as Asia and the Middle East for their financings," one banker said.

This change in strategy was highlighted in June this year when Gunvor diversified its funding away from a single global loan facility into separate European and Asian loans.

The company refinanced a $463 million, 364-day Asian tranche under its $1.55 billion revolver from June 2011 with a $635 million, 364-day facility. At the same time, it extended the maturity of its European tranche by six months to separate the maturity dates of the Asian and European facilities.

In September, Trafigura signed a $400 million, one-year revolver through arranging bank BNP Paribas and 11 Gulf Arab banks. In doing so, the oil trader developed pools of lenders in different parts of the world, cutting its reliance on its core bank group.

CASH IN THE ASIATIC Commodity traders, which have been cultivating activity in the Asian market over the past few years, continue to receive a positive market reaction in the region despite the eurozone crisis, which has hindered loan volumes for most of this year.

The first commodity sector deals in Asia this year emerged at the end of the first quarter and, reflecting the state of the markets, were extension exercises. Wilmar International and Louis Dreyfus Commodities Asia exercised extensions on existing loans to avoid refinancing at higher pricing levels.

An extension exercise is relatively quick to execute compared with a refinancing, due to the shorter credit approval process involved when existing lenders extend the tenors of their exposures.

"Conditions in the last quarter of 2011 and the first quarter of 2012 were much tougher than now. The pressure on lenders has eased somewhat from the second quarter, which is encouraging and has led to more refinancings for the commodity names," a banker in Singapore said.

Noble Group's S$2.4 billion ($1.96 billion) borrowing, which closed in May with 57 lenders on board, was the largest commodity sector loan from Asia this year and highlighted the strong appetite for Asian commodity sector risk.

Trafigura, a marquee name that first ventured into Asian loan markets in November 2006 and has since made successful annual trips, has also benefited from lender appetite. Last week, its $900 million one-year and three-year loan was increased to $1.24 billion following participation from 29 lenders - the strongest response it has had in Asia since making its debut in the region.

However, Trafigura had to pay more for its loan as pricing remains higher compared with 2011 levels. The deal comprises a $1.025 billion, 364-day Tranche A and a $215 million, three-year Tranche B paying top level all-ins of 190 bps and 250 bps, respectively.

In comparison, a $875 million one-year and three-year financing completed in October 2011 paid corresponding top-level all-ins of 165 bps and 200 bps, while a $1.075 billion one-year and three-year loan a year earlier paid top-level all-ins of 200 bps and 215 bps.

At least one more deal is expected in Asia this year - Mercuria Energy's $500 million one-year and three-year loan now in the market - adding to the tally to take the year's Asia commodity trader loan volume close to the $10 billion mark.

While still shy of the $11.19 billion raised in 2010 and $13.03 billion in 2011, this year's number of commodity traders' Asian loans is impressive in the context of the drop in deal flow.

(Reporting by Alasdair Reilly and Prakash Chakravarti. Additional reporting by Maggie Chen)