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22 February 2023

A sneak peek: Commodity Finance Data Report 2022

Oil & gas
Middle East & Africa, Americas, Asia-Pacific, Europe
Commodities content manager
Ahead of the release of The Commodity Finance Data Report 2022 to TXF subscribers next week, here is a first look at some of the top takeaways.

TXF’s Commodity Finance Data Report 2022 leverages the power of Tagmydeals, our user-generated, peer-reviewed deals database, to present an overview of the last year in commodities market transactions, with data across the various regions, sectors, corporate types, currencies, and more. Ahead of the full report to be published next week, exclusive to TXF data subscribers, here are some of the highlights:

Overall deal volume remained the same 

The deal data captured from 2022 shows that year-on-year, there has only been a miniscule decline in overall deal volume, having dropped very slightly to $149.77 billion in 2022, compared to $150.73 billion in 2021. The industry does not yet have the means to return to pre-Covid deal-making levels but has also not experienced any significant decline over the past two years.

Whilst this could be seen as encouraging amid the difficult market conditions of 2022, such as inflation, threats of recession, and Russia’s war on Ukraine, 2021 was also a difficult year of recovery from the extreme liquidity squeeze of 2020, so remaining the same year-on-year is not necessarily an indication of a strong market. 

The industry continues to consolidate towards fewer, larger volume deals 

The more notable year-on-year difference in overall deal volume is the number of deals which closed in 2022 compared to the previous year, down to 178 in 2022 from 190 in 2021. Given that overall deal volume barely declined, this shows that fewer but larger volume deals were closed last year compared to the previous year. 

This same trend can be seen when looking at other data cuts. For example, oil and gas deal volume in 2022 stayed at around the same volume year-on-year ($81.606 billion in 2022, up slightly from $79.077 billion in 2021), the number of closed deals declined to 88 from 102. 

Trafigura remained the top borrower in 2022, having closed $20.093 billion, but whilst the Singapore-based trader also held the top spot in 2021, it only closed $12.032 billion deals that year. This further supports the notion of consolidation, that a greater volume of market liquidity is going to a smaller number of top borrowers, especially seeing as overall volume has barely declined year-on-year.  

This could be an indication of further consolidation in the commodities industry, as banks move towards financing the bigger players in the market over the SMEs, and therefore allocating more capital to fewer deals. This trend really took force in 2020 during the flood of high-profile fraud cases that rocked the industry, causing banks to view all but the biggest traders and producers as higher risk, therefore cutting back their funding portfolio. 

Commodity finance tranche structures are diversifying 

When looking at the breakdown of tranche structures in 2022, data shows that several new structures have entered the market in 2022, such as bridge loans (3 deals), ECA-backed buyer credit (2 deals), working capital solutions (3 deals), and senior notes (1 deal). 

None of these tranche structures were closed in 2021. Given that this change is represented across multiple deals, rather than just one or two outliers, this indicates that the commodities industry is diversifying in terms of loan structures. 

Particularly interesting is the ECA involvement, an example of which being Trafigura’s $800 million untied five-year ECA-backed loan underwritten and arranged by Societe Generale and guaranteed by German export credit agency Euler Hermes. The loan, which closed in October, supports the commitment by Trafigura to deliver, under a five-year supply agreement, up to 500,000 tonnes of non-ferrous metals into Germany.

ECAs have been diversifying into new markets through untied lending facilities, which allows for more flexibility than traditional export credits. Given the role metals and critical minerals are playing in accelerating energy transition, ECAs are now showing a growing interest in securing commodities from major traders on behalf of their respective domestic industries, and we can expect to see more of this type of lending structure in 2023.

Deal volume is picking up in the Asia Pacific region 

As is usually the case, Europe remains the global hub of commodity finance, accounting for $54.2 billion (36%) of overall deal volume. This is generally a given, but more surprisingly Asia Pacific has crept up to a close second place in 2022, accounting for $44.92 billion (30%) of overall deal volume. 

This is a huge leap from Asia Pacific’s 2021 deal volume, which was only $19.13 billion (13.9%). As 2022 marks two years since from the cluster of high-profile fraud cases that rocked the market, and particularly the Asia Pacific region, it appears as if the region is healing, and business is picking up again. 

The metals and mining sector saw a year-on-year boom 

In 2022, metals and mining deal volume was up to $26.278 billion (17.5%) in 2022 from $17.718 billion (12.8%) in 2021. The number of deals also increased to 36 from 26, demonstrating that this growth is not just a few large players upping their debt portfolios. 

This is encouraging considering the crucial role that the sector will play in the green industrial revolution and the journey to net zero. The metals and mining sector has seen a vast lack of investment over the past decade, as investors were burned during the last boom. TXF data shows a year-on-year drop in metals and mining deal volume between 2020 and 2021, suggesting that the sector was not in a strong place. But coming in at a robust increase in volume in 2022, as demand is forecast to remain steady, the metals and mining sector saw a good year. 

The Commodity Finance Data Report 2022 will be added to our bank of PDF data reports next week and is exclusive to TXF subscribers. 

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Exclusive subscriber-only content published last week:

Sullivan: Compliance and regulatory update
Mark Norris provides a compliance and regulatory update looking at the sanctions regime in light of the on-going Ukraine crisis: the Economic Crime Bill, the UK’s National Security and Investment Act, the global scope of the UK’s Bribery Act (in light of the Petrofac judgement), and the Corporate Criminal Offences for the failure to prevent the facilitation of tax evasion under the Criminal Finances Act 2017... Read on here

Indonesia’s Suminto on engaging bold plans for energy transition with the help of Islamic finance
Suminto Sastrosuwito, director general of budget financing and risk management at Indonesia’s Ministry of Finance discusses his plans on how Indonesia will finance the energy transition and the extent to which Islamic finance will play a role... Read on here

Yunlin: A Taiwanese offshore wind restructuring
Delays and project cost overruns from the pandemic have meant lenders and sponsors of the Yunlin offshore wind farm in Taiwan are scrambling to remedy the project’s financial woes. ECAs may push out the tenor envelope to ease the pressure – but concrete solutions are yet to be realised... Read on here

INEOS’ Project ONE pulls in 20-plus lenders
INEOS Olefins Belgium has closed on the partially ECA-backed debt facilities for its €4 billion Project One greenfield olefins complex in Antwerp... Read on here

Lotte Group close to financing for Indonesia petchem project
Lotte Group is expected to sign a $2.4 billion ECA-backed deal for a petrochemicals plant in Indonesia later this month... Read on here

AIIB eyes three Uzbek solar PVs
AIIB has proposed up to $145 million to develop three solar farms totalling 897MW in installed capacity across Uzbekistan... Read on here

IDB preparing $800mn for second stage of 1890MW hydroelectric upgrade
IDB is considering an $800 million conditional credit line for the second phase of the Salto Grande Hydroelectric Complex modernisation project... Read on here

Cambodia seeks partners for waterway project
Cambodia's Ministry of Public Works and Transport (MPWT) is planning a waterway project that will involve up to 7km of canals... Read on here 

Zambia-Zimbabwe out to AfDB for hydro advisory
Zimbabwe and Zambia are out to the AfDB to provide counsel on the 2.4GW Batoka Gorge hydroelectric scheme... Read on here

Balikpapan refinery expansion financing to sign imminently
Indonesian energy firm Pertamina is expected to sign an ECA-backed debt package to finance the expansion of its Balikpapan refinery in Borneo Island this month after delays to the documentation process... 
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