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Trafigura launches inventory-backed bonds from Singapore

Singapore

TRAFIGURA, one of the largest independent oil traders in the world, has launched bonds for a structured financing programme backed by a portfolio of commodities - the first of its kind in the commodity financing landscape.

Some US$470 million in notes, offered by a special purpose vehicle incorporated in Singapore, have been sold to six banks including DBS Bank and OCBC for a start. Such notes will eventually be offered to the wider capital market after a credit rating is obtained, said Trafigura.

Besides allowing the firm to borrow more from banks through a separate entity, this product also enables Trafigura to diversify its funding sources to capital markets, especially as banks face increasingly tighter regulations.

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The standalone vehicle, called Trafigura Commodities Funding Pte Ltd (TCF), will use proceeds from these notes to buy crude oil and refined metal inventories sold by Trafigura across 12 jurisdictions in Europe, the Middle East and the Asia-Pacific, and sell them back eventually.

TCF will draw on the account containing these proceeds according to the amount of collateral it purchases.

"Effectively we are doing a repo transaction, but rather than one by one we do it on a portfolio basis," head of corporate finance Laurent Christophe told The Business Times over the phone from Geneva. "So it's kind of a big factory of repo."

Repo transactions are sale-and-repurchase agreements where a commodity trader sells commodities such as metals to a bank and buys these back later, at a higher price.

And in contrast to borrowing base facilities - large secured loans typically divided between many banks - which are often used by trading houses, this structure will also not provide lenders any recourse to Trafigura.

This was necessary so as to allow TCF to have a credit rating unlinked to Trafigura's own credit profile, said Mr Christophe.

TCF will be seeking an investment grade rating. Trafigura does not have a public rating but has a credit standing consistent with an investment grade profile, according to its annual report.

"The vehicle has to be able to manage the collateral and also liquidate the collateral in case Trafigura is not able to buy it back," he said. "Therefore you can demonstrate to a third party, to a rating agency, that such a programme can survive the bankruptcy of Trafigura. Obviously that's not the base case, that's the structuring case."

Besides proceeds from the notes, TCF will also be able to tap a subordinated loan from Trafigura for its purchases. This loan, which will make up 5-10 per cent of the size of underlying inventories, will be adjusted weekly according to the composition of the portfolio.

"Effectively Trafigura has skin in the game," said Mr Christophe. "So if something goes wrong, if the entire portfolio is wiped out - which obviously is not possible because we are talking about commodities - then Trafigura would be taking the risk up to the amount of the junior loan that we've got in this programme."

Another safeguard for noteholders lies in the true-sale basis on which Trafigura will sell the commodities to TCF. This means that the commodities will not be susceptible to being clawed back by Trafigura's debtors in a bankruptcy event, and that TCF will have full ownership of the products.

Trafigura is hoping to obtain the credit rating for TCF's bonds in the first quarter of next year, which will then allow it to offer them to investors in the subsequent quarters.

DBS Bank, Mizuho Bank, Natixis, OCBC Bank, The Bank of Tokyo-Mitsubishi UFJ and Westpac Banking Corp (Singapore branch) are the original noteholders of the programme; Natixis is the main collateral manager and liquidation agent for TCF.

Said Trafigura Asia-Pacific chief executive Tan Chin Hwee: "As part of the Trafigura team and also as a member of the Financial Capital Advisory Panel at the Monetary Authority of Singapore, we are delighted to be able to leverage Singapore's unique positioning as an innovative global financial centre to launch this inventory backed product with financial institutions."

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