Refocusing to provide comprehensive coverage

 

 

TXF: RBI has recently restructured its commodity finance division. What is the new structure and who is working within each part of the new set-up?

 

Thomas Schirmer: Before the re-organisation, ~RBI^ followed two different client relationship approaches: on the one hand clients were serviced within specialised industry teams, on the other hand there were customer departments that covered clients based on geographical aspects. Due to historic developments and personal relationships with individual customers, this partly led to situations where industry related customers were not taken care of by the relevant industry team but rather by one of the ‘regional’ departments. The recent initiative has now been introduced to eliminate these last remaining gaps in clarity and to streamline the client coverage primarily along global industry related responsibilities.

 

For customers outside specific industry clusters, and where the critical mass is not given in terms of industry coverage, the geographical responsibility remains in place in parallel. But the new structure of the commodity finance division foresees that all commodity clients, be it producers, processors, traders or distributors, are now being serviced by one of the three commodity teams: oil & gas, metals & mining as well as agri commodities & fertilisers.

 

The personnel in charge of the commodity industries have remained unchanged, namely: Peter Broinger for metals & mining, Peter Koeck for oil & gas and Martina Zimmerl for agri commodities & fertilisers.While the oil & gas and metals & mining teams remain within Thomas Schirmer’s division, which has now been renamed Global Natural Resources, Martina’s team has joined forces with the food & beverages (F&B) team in order to raise synergies between the agri and the F&B segment.

 

TXF: What has been the rationale for such a restructuring and in what ways do you see this as being beneficial to your clients?

 

Peter Broinger: Historically, the client coverage was rather organised based on geographical aspects and a split into Central & Eastern European coverage on the one hand, and Austria, Western Europe and rest of the world on the other hand. However, over time, we started to think and work along industrial value chains rather than country borderlines, which has increasingly turned out to be beneficial both for the knowhow build up within the organisation, as well as for the customers being serviced by focused and experienced industry teams.

 

Peter Koeck: In the new setting, which allows an efficient and targeted bundling of customer segments, the industry heads have the opportunity to gain a holistic picture of the market and to be comprehensively aware of what our competition is offering to clients pertaining to a specific industry.

 

On top of that, we also think that it will now be easier to link our new customers to the existing ‘traditional’ commodity clients, and we are strongly convinced that the concept of all clients along a specific industry-related value chain being serviced out of one and the same team, will create considerable synergies going forward.

 

TXF: How does the new set-up help in introducing commodity related clients to other parts of the bank?

 

Martina Zimmerl: We strongly believe that in the new set up, partly involving new colleagues joining the established commodity finance teams, our customers will benefit even more from the entire product portfolio that RBI can offer, due to a focused and streamlined servicing and sales approach on our side. This is, and has been, increasingly important in our markets, as the large commodity producers and processors have been focussing more and more on corporate finance solutions over the last few years.

 

TXF: How important is it to be a ‘financial solutions provider’ rather than simply a bank?

 

Martina Zimmerl: A bank providing liquidity might only face competitive disadvantages in the future from our point of view – unless its funding costs are substantially cheaper than its’ peers, which would make it less ‘dependent’ on additional cross-selling requirements. Clients are nowadays expecting ancillary services to pure funding, such as performance or payment risk coverage, or advisory on how to structure best their borrowings in line with their production and trading patterns.

 

TXF: RBI has particularly good coverage in Central & Eastern Europe and Russia and the CIS. Has the bank’s geographical spread with commodity financing changed in any way with the restructuring that has taken place?

 

Thomas Schirmer: Not necessarily, as the global commodity markets were under the responsibility of various teams also in the past. What has changed though, is that from now on, in terms of all commodity related business being done out of the RBI head office in Vienna, the responsibility lies within one team per commodity segment on a global basis, which is then also the link to our branches and trade finance hubs in New York, Singapore and Beijing.

 

However, apart from Austria, Central & Eastern Europe and particularly the CIS markets will of course remain part of our focus areas, simply due to the enormous resource base in these regions.

 

TXF: Traditional pre-export finance (PXF) business has been a lot slower in markets such as Russia over the past two years. Do you see a fundamental shift taking place?

 

Peter Koeck: It is true that the firsttier commodity producers have shifted to unsecured borrowing rather than pre-export finance. However, we believe that there is still room for pre-export finance for second and third-tier corporates in the future. Moreover, market players inevitably will return to PXF transactions in times of economic slowdown or political instability, which is unfortunately a development that we can all observe at the moment.

 

TXF: What do you see clients asking for now that is a fundamental change from the past? How is RBI responding to client demands?

 

Martina Zimmerl: On the agri side, particularly in Ukraine, over the last years we have seen agricultural producers looking for transactional trade finance or borrowing base facilities from Western banks as opposed to working capital finance from local banks. They approached Western banks with the expectation of cheaper cost of financing, which such banks could accommodate thanks to the partially secured and self-liquidating nature of the financings. Obviously the current political situation in Ukraine has slowed down this development for the time-being.

 

Peter Koeck: On the oil & gas side, the role of the global trading houses has broadened, particularly in the context of 2nd/3rd tier producers and independent refineries making increased use of pre-payments for their working capital requirements. While the trading houses keep a share of the risk on their books, they look to lay off substantial percentages of the performance risk with banks and insurance companies.

 

Peter Broinger: The metals & mining markets have largely seen difficult times since the financial crisis of 2008-2009 kicked-in, with certain exceptions. This has resulted in a substantial shift in the medium to long-term outlook and approach of companies and financial institutions active in these industries. This dynamic and changing environment will require flexibility and tailor-made solutions on all sides, which RBI has always been trying to accommodate, and will keep doing so going forward.

 

TXF: Many banks have reduced their capacity within commodities and some have even stopped servicing certain sectors – such as softs, for example. RBI has chosen to remain committed to all aspects of the commodity business and its clients. Given the spread of your client base, how important is this decision?

 

Martina Zimmerl: The decision to remain committed to the agri commodities and fertiliser industries is very much grounded on the fact that our network banks, particularly RB Aval in Ukraine and RB Russia are very strong and committed to these segments. For instance, up to 20% of RB Aval’s corporate loan portfolio is related to clients in the agri segment. Due to our network banks’ strong involvement in this industry and the fact that this segment is very export oriented, it was clear to us that RBI head office needs to stay in the industry and to even expand our activities.

 

Thomas Schirmer: I think in general, one can say that commodity and natural resource industries form a very substantial part of the economies in our core markets, which underlines the importance these markets have for the RBI Group.

 

TXF: How has the increased focus on regulatory issues and compliance affected the way the bank operates in the natural resource and commodity finance sector?

 

Peter Koeck: Obviously the life of a commodity banker has not become easier over the last years. Regulatory and compliance requirements are being implemented on a national level, and EU directives are usually interpreted quite strictly. However, as this situation is pretty much the same for everybody, I guess this simply has to be considered as an integral part of our job going forward.

 

TXF: With regard to metals in particular, there has been a big requirement for financial restructuring by many producers – how has RB International coped with this upsurge in restructurings?

 

Peter Broinger: As mentioned earlier, the last few years since the start of the financial crisis have been quite tough for most markets in the metals & mining industry, which has also resulted in a number of restructuring processes. From an RBI perspective, like for everybody else I guess, this has resulted in increased monitoring and daily management efforts, in order to keep the restructurings under control together with our colleagues from the international workout department. Some of the files have been successfully restructured, but some are still suffering from the continued subdued pricing levels and an unhealthy supply and demand balance. Given the current outlook, this might remain unchanged for the near future.

 

TXF: International commodity trading companies are a real driving force in the market. How is RBI working with traders, and how important is it to be at the forefront of developments as the traders expand their supply chains?

 

Thomas Schirmer: International commodity trading companies have always been an important pillar of our business model, and they will definitely remain a key strategic client segment in the future. We service the large commodity merchants with clean funding lines as well as structured finance solutions, eg. limited recourse facilities for financing the traders’ pre-payments to their suppliers in the CEE/CIS region. Small and medium-sized commodity traders are rather being serviced by providing self-liquidating transactional trade finance facilities. Also in this segment, the ability of a bank to provide coverage of specific risks – be it with respect to financial institutions or corporates – is becoming increasingly important.

 

We try to follow the global trading houses along the value chain. In this respect the recent reorganisation will help us in achieving our goal to be there where our traders need us to be.

 

TXF: Some of the loans to companies within the energy sector have grown considerably in size (eg. Rosneft pre-finance for Glencore and Vitol). How does the bank view these developments and what can we expect to see in terms of consolidation?

 

Peter Koeck: The mentioned transactions have been designed for a specific situation, ie. the take-over of Russia‘s TNK-BP by Russia‘s largest oil company. While we are not convinced that this is the best solution for the further prosperous development of the Russian oil & gas sector and economy overall, we do expect the consolidation to continue, including increasing funding requirements for top-tier companies. We will continue to follow the market and play our role within our possibilities and resources.

 

TXF: Looking ahead, how positive is RBI in relation to natural resource and commodity financing?

 

Martina Zimmerl: Over the last few years, Eastern European commodity producers and processors have increasingly expanded their supply chain. An oilseeds crusher for instance is not only producing raw vegetable oil but is also refining and bottling vegetable oil and is thereby directly approaching the end client. Traditional commodity clients therefore will continue to move up and/or down the value chain with the aim to capture additional contribution margins. This will certainly trigger additional financing needs from our traditional commodity clients.

 

On the other hand, commodity importing countries such as China are increasingly engaging in processing raw commodities in order to add value within the country rather than importing processed commodities. This tendency will lead to increased competition in all three main commodity industries and to high-cost players leaving the market. Competition within commodity finance banks therefore will remain tough, also taking into consideration that there are more and more local banks that are now active in commodity finance (eg. Chinese state banks recently engaging in commodity finance).

 

Another aspect will be the volatility of the various commodity prices: the less volatility, the bigger the companies adding real value will become. Niche players benefitting from simple contango/ backwardation arbitrage opportunities might continue to have a hard time (the development of the crude oil price and corresponding correlated products prices recently being an example in this respect).

 

TXF: Ukraine is a major market for the bank, can you comment on how commodity-related financings will proceed given the increased risk focus for the country in the present political climate?

 

Peter Broinger: This is of course a very difficult question, as the situation we are facing right now was not expected by market participants in this severity, which has left all of us surprised, and in fact shocked. In terms of financing, this is and will remain for some time, quite a challenge in order for the market to keep providing sufficient liquidity and working capital for the companies operating in this market.

 

From an operational and logistics perspective, we have not heard of any major issues up to now, so here we understand that our customers have been able to keep these processes under control in a more or less ‘business as usual’ mode, and we strongly hope that this continues to be the case. Apart from that, we of course strongly hope that the situation will stabilise as soon as possible, most of all in the interests of the people living in the country.