As customers of Deutsche Bank’s financing (STCF) business return for more liquidity, we highlight some of 2017’s deals
Each year at Deutsche Bank, we review some of the highlights of the trade finance structuring year and share these deals with our community. You can read about some of our 2016 deals here.
During 2017, our teams were busy consolidating metals, mining and energy relationships in China, Kazakhstan, Belgium and the UK. This article walks you through some of these deals and how they helped the borrower build their business and move their commodities across borders.
Resilience of SCTF
Chinese teapots, copper reprise, and low-cost aluminium
In 2017, Deutsche Bank arranged a significant performance risk-only SCTF deal in China for Shandong Qingyuan Group, a major base oil producer.
Capitalising on the relaxation in China of foreign debt regulations, Qingyuan Group sought to tap the more liquid offshore financing market for an enlarged syndication to fund its increased working capital requirements arising from capital expansion as well as settlement of crude oil exports. Chinese authorities have started to grant crude oil import licences to independently-owned refineries (known in the industry ironically as ‘teapots’) including Qingyuan Group since 2016.
Launched at US$500m, the syndication was closed in June 2017 with an oversubscription of US$650m from a diversified group of 15 international and regional lenders. Such appetite from international banks underlines Shandong Qingyuan’s positioning as a leading petrochemical corporate.
The US$650m three-year facility not only allowed the group to refinance fully a previous syndicated facility and support increased working capital requirements (mainly imports of crude). Rather, it allowed the group to push out the debt maturity profile, optimise its cost of debt, reduce its reliance on domestic short-term funding and improve its balance sheet.
Another example of breaking new ground was the two-year pre-delivery financing arranged for Xinjiang Qiya Aluminium and Power Co (Qiya) for RMB600m (US$90.65m).
Headquartered in Emeishan City of Sichuan Province, (so well away from the scope of Beijing’s winter anti-pollution measures) Qiya entered the aluminium industry in 1995 and ventured upstream into alumina (the chemical compound derived from the ore, bauxite) to be further vertically integrated. The group now owns 800,000 tonnes per year of aluminium smelting capacity and 1.2 million tonnes per year of alumina refining capacity. None of the infrastructure is more than three years old, and there has been considerable investment in new processing technology. Thanks to its modern cell technology, Qiya is one of the lowest cost vertically-integrated aluminium smelters in the world.
In 2017, having pledged most of its fixed assets to Chinese banks, Qiya was looking for ways to grow its business with Swiss-based commodity trader Trafigura and support its working capital requirements for the production of aluminium ingots. This novel SCTF transaction where the aluminium is delivered into central China, but handled by Trafigura’s on-shore trading subsidiary, made it possible for Qiya to achieve these objectives.
The facility is financially self-liquidating, Qiya utilises the funds to support the future production and sales of aluminium ingots under the offtake contract with Trafigura – and the sales proceeds channelled through a dedicated collection account serve as the prime repayment source.
Having already successfully tapped the offshore syndication market in 2016 via an award-winning one-year syndicated facility, Chinese copper producer Fangyuan Group was eager to repeat the experience in 2017. It wanted to:
- gain longer term funding in the offshore market (three years compared with the one year);
- optimise its debt structure;
- satisfy its USD working capital requirements via the Hong Kong trading arm HK Lufang; and
- capitalise HK Lufang (it was the first time the group had used HK Lufang as the borrower to raise the syndicated facilities).
This was the third year in a row that Deutsche Bank had led a syndication for Fangyuan Group. The company featured on the front cover of our H1 2017 flow magazine, and details of these other details can be found in the feature, ‘Copper-bottomed innovation’.
Copper, zinc and petrochemicals: back for more in EMEA and the CIS
On 15 January 2018, the UK energy and chemicals corporate INEOS confirmed that it is launching six new oil and gas businesses, following the completion of a number of North Sea Oil and gas acquisitions that began in 2015.
This US$40bn borrower has a production network spanning 105 operating sites in 22 countries. It is a top ten oil and gas producer for the UK. Products include the raw materials used to manufacture a variety of goods from paints to plastics, textiles to technology, and medicines to mobile phones.
Over the past two years, the company has grown a substantial oil and gas business across onshore and offshore activities. After the acquisition of DEA UK and Fairfield Energy assets INEOS acquired the Forties Pipeline System from BP, and acquired DONG Energy’s Oil and Gas business with significant onshore and offshore exploration licences while expanding its upstream services business.
Deutsche Bank‘s SCTF services have been instrumental in supporting INEOS with this growth, and the bank was first appointed as one of the five coordinating mandated lead arrangers and bookrunners to arrange and syndicate the £220m reserve-based lending facility that closed in June 2016. This was used for the acquisition of the DEA UK oil and gas business. In September 2017 the facility was increased to £700m and extended by another five years to partly finance the acquisition of the DONG Energy assets located in Norway, the UK and Denmark.
While the previous facility was in GBP only, the new RBL facility is available for drawings in €, GB£ and US$ to accommodate access to the wider selection of currencies required post acquisition.
Another example of repeat financing appetite was the €600m borrowing base facility signed in December 2017 by Nyrstar Sales and Marketing with a syndicate of 16 banks.
Headquartered in Belgium, this €2.76bn global multi-metals business with a market leading position in zinc and lead (and growing positions in other base and precious metals such as copper, gold and silver) had first implemented a €400m facility in 2010 and then refinanced it in 2012 and 2015. Each time, Deutsche Bank acted as coordinating mandated lead arranger, sole bookrunner and facility and security agent.
Having committed significant investment to operating assets, particularly the Port Pirie lead smelter in Australia, Nystar is on the cusp of transforming into an advanced multi-metals processor. The 2017 transaction was not only oversubscribed (demonstrating market confidence), but attracted new lenders just at the time when the company was enhancing its balance sheet and liquidity position.
“The renewal of the structured commodity trade finance facility with a €600m limit is a further step in strengthening our balance sheet and demonstrates the ongoing and strong support from the financial markets of our company as we deliver against our strategic initiatives,” said Chris Eger, Nyrstar’s Chief Financial Officer.
Eger added, “The facility remains a cornerstone in our financing portfolio and is ideally structured to meet our working capital requirements and help us maintain a sufficient amount of liquidity.”
KAZ Minerals is a high-growth copper company focused on large-scale, low-cost, open-pit mining in Kazakhstan with a market capitalisation of US$3.5bn.
ON 8 June 2017, KAZ Minerals refinanced its existing pre-export finance facility with an amendment and extension to US$600m. This extended the maturity profile of the original facility by 2.5 years from December 2018 until June 2021. As of May 2017 US$224m had been drawn down, a figure that rose to US$300m by 30 June.
An enlarged syndicate of 12 banks participated. Commenting on the deal, Chief Financial Officer of KAZ Minerals Andrew Southam said, “The deal will enhance our financial flexibility as we complete the ramp up of output from our new mines at Bozshakol and Aktogay.” With the opening of these two mines (in 2011 and 2012 respectively) came a significant restructuring and repositioning of the group as a low-cost producer. By-products also include zinc, gold and silver.
At around US$30bn, the Kazakh mining industry is now one of the most competitive and fastest growing sectors in the region – in fact, Kazakhstan ranks second to Russia among CIS countries in mineral production volumes.
This article is the first in a series of articles that discuss trade finance globally at home.
*Banner image: Bozshakol Concentrator (Source: KAZ Minerals)
Global Head of Structured Commodity Trade Finance, Global Transaction Banking
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