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Perspective
06 June 2023

TXF Commodity Finance Deals of the Year for 2022: Shining through!

In:
Agri/Soft Commodities, Metals and Mining, Oil & gas, Power, Renewables
Region:
Middle East & Africa, Americas, Asia-Pacific, Europe
Editor-in-chief
It was a tough time in 2022 for those involved in financing new commodity deals. But despite all the adversity and myriad challenges, some excellent deals were concluded. Here, we list the TXF winning 10 Commodity Finance Deals of the Year for 2022.

The TXF Commodity Finance Deals of the Year 2022 were presented to the winners at the awards at a gala dinner the evening before the TXF Global Commodity Finance & Sustainable Natural Resources Conference 2023 held on 23-24 May at the Krasnopolsky Hotel in Amsterdam. The 10 winning deals – we only ever award 10 - are listed below. But before we briefly review the winning deals, it is probably pertinent to remind ourselves of the commodity sector climate through much of last year.

There is no doubt that the year 2022 will be looked back on as the year the commodity sector was properly turned upside down – and of course the principal reason for this has been the Russian invasion of Ukraine and the consequences of that. What it has done though is draw our focus much more into three main and very important areas of consideration for commodities – security of supply, transitioning through the push to net-zero, and of course sustainability. 

As we all know, the commodity sector has always liked a degree of disruption as it provides opportunities for producers, buyers, suppliers, traders and financiers – but a full-blown war is in another dimension, and we can certainly do without this dreadful war being waged by Russia in Ukraine. And let us not forget, the commodity sector had still been trying to get over the impact and mess of the commodity frauds of 2020 and beyond, the subsequent bank pullbacks from the sector, and then the severe disruptions to supply caused by Covid. 

Traders as a group through 2022 were much more resilient than the banking community. That said, a good hard core of banks has kept supporting the commodity sector, even if some have reverted to the so-called ‘flight-to-quality’ or ‘flight-to-size’.

The most serious consequence of the war in Ukraine has been the energy crisis this has led to. Some around the globe may think this is purely a European issue. Far from it! But the real shock for much of Europe, and particularly the EU, was how exposed it was to its reliance on Russian gas, and how little some countries had properly pursued alternative sources of supply and the transition to renewable energy. Finding alternatives, when most global gas supplies are wrapped up in long-term offtake contracts is not an easy thing. The real winner here is the US. 

Within this maelstrom of energy supply, we even saw export credit agencies (ECAs) up their financial support for commodity traders in 2022 for emergency gas supplies, with the most high-profile deal being the $3 billion from Germany’s Euler Hermes in December for gas supplies through Trafigura. Other ECAs – such as Sace, Kexim/KSure and JBIC – are also active in such ‘untied’ deals.

On the soft commodity front, the loss of grain and oilseed products from Ukraine to the global market through 2022 was catastrophic for many countries – particularly in the Middle East and Africa. Replacing these supplies has not been easy. The shortages of staple food crops last year also induced a number of other countries around the world (India and Indonesia for example) to put temporary bans on some of their own agri-exports. Russia has been a winner, not only has it stolen big volumes of Ukrainian grain, but it is also able to export more of its own agri-production to countries in need. Russia is also of course exporting huge volumes of crude to India and China, in particular, - at discounted prices.

Again, this consequence has starkly revealed the greater need for security of supply. And in the minerals sector, security of supply had already been taking root in many economies, particularly those producing products related to the energy transition goals.  Nevertheless, the drastic need for greater security of critical minerals supply has been a real and recent eye-opener for many! And again, another example of an ECA working with traders saw Euler Hermes provide $800 million ‘untied’ financing to Trafigura in September 2022 for the supply of critical minerals to German industry.

With all this going on in the market, the big commodity traders have still been, and continue to be, very much on top of their game. They have all, unsurprisingly, generated record profits. The services the traders provide are essential and at the front end of the markets they are dealing with issues and difficult situations that many of us have little or no idea about. But even so, some of the traders had to access bundles of emergency liquidity through 2022 because of high commodity prices and margin calls. It is certainly not an easy ride when margins are so tight.

The core banking community stuck by producers and traders in 2022 thankfully, but in certain places/jurisdictions with a reduced number of banks involved. There is an increasing raft of non-bank lenders now involved in commodity trade finance, and this looks set to continue. Brokers and underwriters are vital to global trade, but here again we are seeing a ‘flight-to-quality’. As ever, within commodities trade and finance, where an opening occurs inevitably another player will come in. 

Some background: TXF Commodity Deals of the Year are assessed in January each year for deals closed in the previous calendar year. Around early December, institutions are invited to submit deals that they consider to be stand-out deals, special to the market, sector, country, region or ‘landmark’ in structure or some other way. Those deals and others already on the TXF database – TagMyDeals - part of TXF Intelligence, can be voted for by all in the market through the TagMyDeals website. The senior editorial team then assess the deals with the most votes and we also liaise with commodity specialists over the short-listed deals to ultimately come up with the final winning Perfect 10. 

Below are the Perfect 10 winners in commodity finance for 2022. For further details on each transaction, follow the link on the company name.

Overall Commodity Finance Deal of the Year

China Molybdenum Co. Ltd. (CMOC)  

The Overall Commodity Finance Deal of the Year award went to China Molybdenum Co Ltd (CMOC) for its $600 million pre-export financing for the export of niobium, a transition metal mainly used in alloys and stainless steel. The product will come from Brazil and the offtaker is IXM, which has a seven-year offtake contract. This highly important transaction in the specialty metals sector was closed in May 2022 with bookrunners ING Bank and China Construction Bank, and a total of 13 international lending banks. The deal is certainly the largest niobium structured commodity financing ever. 

Also see the TXF article on this landmark deal here

Africa Commodity Finance Deal of the Year

Azule Energy Holdings

This $2.5 billion pre-export financing (PXF) to Azule Energy Holdings in Angola, closed in July 2022, was the largest structured commodity financing transaction in Africa last year. The deal was vital to secure continued oil and gas activity in Angola’s upstream sector. Azule Energy is a joint venture between BP and ENI which consolidated both group's Angolan oil and gas upstream assets, ensuring material synergies and operational efficiencies for both parties. Sponsors expect Azule Energy’s new independent, integrated operating model will unlock significant cost savings, which will come primarily from operational synergies in logistics and technology. Deutsche Bank acted as coordinating bank, and SMBC as bookrunner, facility and security agent. At the time, Deutsche Bank’s global head of natural resources finance, Sandra Primiero, said: “This transaction is structured to ensure ESG objectives are met in this critical upstream part of Angola’s oil industry. We continue to finance oil and gas, or else we risk a complete economic breakdown which is in nobody’s interest.”

Asia Commodity Finance Deal of the Year

Hebei Risun

This transaction is a $62 million sustainability linked pre-financing facility for borrower Hebei Risun Energy in Hong Kong, one of the key subsidiaries of China Risun Group which is the world largest coke producer. Risun Energy deploys circular production methods to optimise coke and refined chemicals output, whilst reducing emissions and recapturing coal gas (by-product) that supplies 70%-80% of its total power usage. Whilst China itself is committed to net zero emissions only by 2060, the forward initiatives by Risun Energy can be seen to be pushing the boundaries with this sustainability-linked loan (SLL). Part of the loan will be used for the borrower’s procurement of ‘green’ equipment with identified KPI targets to improve the greenhouse and particulates emissions, and part for the purchase of coke. Producers such as Risun Energy, which has a prominent market standing and clear climate change strategy, is therefore aggressively upgrading its plant facilities in order to meet stringent ESG targets, which makes them a frontrunner in this area.  The financing structure was arranged in May 2022 by Rabobank in Hong Kong, and has a tenor of two-years. The facility also allowed Risun Energy to secure long-term sales and to get paid early in order to prepare for raw materials procurement. In addition, it enabled the offtaker to secure a stable supply of coke with a discount. The structure, effectively converted a credit risk into a performance risk, enabled the borrower to make a long-term preparation for the production, improve their working capital position and drive business growth.

Europe Commodity Finance Deal of the Year

Vitol

This $4.99 billion secured margin revolving credit facility (RCF) financing was an exceptional transaction in an exceptional environment last year. Switzerland-headquartered Vitol is the world’s largest independent oil trader. Last year, many traders needed to resort to emergency liquidity financing – this transaction was the largest in the market. Due to greater commodity price volatility through the course of the year, there had been an increase in margin requirements on hedges held to cover physical positions for entities trading commodities. Commodity traders responded to the market volatility by reshaping their respective trading portfolios and mix of hedges. This included raising additional funding specifically for this purpose. Vitol moved to arrange a one-year committed secured RCF, dedicated to fund its margin requirements, to ensure ongoing sound liquidity management heading into 2023. The deal closed in early December 2022. The facility, somewhat unique in its nature and purpose, and material in scale and amount, was successfully executed in a timely basis and represents a significant commitment from the banking group indicating the ongoing appetite from the banking sector for global commodity trading companies, noting continuing price volatility and the imperative to ensure energy security in the global economy. Eight underwriting and MLA banks led the deal, and brought in a further 14 banks to the transaction.

Latin America Commodity Finance Deal of the Year

Energy Infrastructure Holdings

This $723.8 million landmark Latin American financing for Energy Infrastructure Holdings finances the acquisition of the oil terminal business of Puma Energy (a subsidiary of Trafigura). The transaction has been beneficial for Impala Terminals Group as they continue to build their terminals business. It has allowed Puma Energy to monetise these assets and apply sale proceeds to reduce overall debt, whilst retaining the offtake contract in the terminals sold. The terminals are strategically important for the import of refined products in emerging markets, thus continue to be a valuable part of Puma Energy's supply logistics network. The facility’s two-year tenor is relatively short-term with a balloon repayment at maturity with unequal amortising structure and cash sweep mechanism features. These terms were agreed to optimise pricing and bank appetite, whilst providing a level of certainty for the immediate acquisition. Additionally, what makes this transaction remarkable, is: the structure of acquisition finance utilising underlying offtake contracts to reduce recourse and maximise debt load; assets are strategically important for the emerging markets they are located in; and monetising assets in emerging markets can be challenging, and the proposed terms and structure allowed the buyer/borrower to optimise finance. Sponsors of the deal, which closed in September 2022, were Trafigura and IFM Investors.

Middle East Commodity Finance Deal of the Year

Tamar Gas Field

In March 2022 Mubadala Petroleum reached financial close on the debt backing its $1.025 billion acquisition of a 22% stake in the Tamar gas field, offshore Israel, from Delek Drilling. The debt facility amounts to $720 million and has an eight-year tenor. The official borrowers are SPVs Tamar Investment 1 and Tamar Investment 2. This is a landmark acquisition of significant geopolitical importance. The financing supports the first major commercial transaction between Israeli and UAE-based entities. It is also the first-ever major capital investment of a UAE-based entity in Israel following the August 2020 normalisation agreements between Israel and the UAE (known as the ‘Abraham Accords’). Mubadala Petroleum’s acquisition of a stake in Tamar represents a strategic investment that will strengthen its gas portfolio in line with its energy transition targets towards natural gas. Financing is secured on a world-class asset, with ample reserves and of high strategic national importance to Israel given that it supplies the majority of the country’s domestic demand.

Commodity Trader Deal of the Year

Olam Food Ingredients

In August 2022, Singapore-headquartered Olam Food Ingredients (ofi) secured a multi-tranche sustainability-linked facility worth $1.975 billion. The facility comprises two and three-year revolving credit facilities (RCF) and a three-year term loan. The interest margin is linked to the achievement of sustainability targets across ESG areas and could reduce if those targets are met. The facility has Olam Holdings as the borrower of record and is initially guaranteed by Olam Group, which will transfer to ofi Group Limited post the planned IPO and demerger of ofi. Proceeds will be applied towards refinancing of ofi’s existing loans and for general corporate purposes. The loan was backed by a syndicate of 19 international banks and is one of the biggest loans in the soft commodity sector during the course of last year. This transaction came following a record year for Olam Group. This August transaction also came during a very busy and successful year for Olam Group, which began 2022 with a $4 billion group of facilities in January, and ended the year with a $2 billion bridge loan in December 2022.

Energy Commodity Finance Deal of the Year

Trident Energy Finance

Closed in July 2022, this $565 million secured reserve-based lending (RBL) facility is for Trident Energy's portfolio of operating assets in Brazil and Equatorial Guinea. Given the jurisdictions, the transaction is a rarity in the market today and acknowledgement goes to the arrangers for putting in place a tightly structured transaction that delivered for the borrower and brought together a core syndicated group of banks. The tenor is five years. Mandated lead arrangers are: Societe Generale, HSBC, Credit Agricole CIB, Deutsche Bank, ING Bank, Mauritius Commercial Bank, Standard Chartered and Citi.

Soft Commodity Finance Deal of the Year

Sucafina

The Soft Commodity Finance Deal of the Year award for 2022 was awarded to Sucafina SA, a leading sustainable farm to roaster coffee company, which successfully closed a two-year $275 million sustainability-linked senior secured borrowing base facility in August 2022. The official borrowers on the deal are Sucafina Colombia & Sucafina Brasil. The company is no newcomer to sustainability-linked deals. This facility includes a sustainability framework, supporting the group's vision to be the leading sustainable farm to roaster coffee company in the world. Challenging key performance indicators have been put in place, with a strong focus on increasing the number of certified farmers, developing a carbon emissions and climate action plan, and monitoring deforestation in Brazil and Colombia. The facility includes dynamic mechanics to track the value of the borrowing base assets during the evolution of the stock from coffee parchment all the way to a paid receivable. During the process the Colombian business of Sucafina was added. This addition with new sub limits, two new jurisdictions and four new banks that were added made it a very complex transaction. Bookrunner on the deal was SMBC. Interestingly, FMO Development Bank also came into the transaction with a $29.5 million direct loan.

Market Innovative Commodity Finance Deals of the Year

Trafigura Group 

Somewhat setting the commodity and the export credit financing market alight last year was the amalgamation of these two streams of financing through two landmark deals. These two transactions are both export credit agency (ECA) backed with the funds being made available to commodity trading company Trafigura for the supply of commodities to German industries. In the first instance, in September 2022, the German ECA Euler Hermes provided an $800 million so-called ‘untied’ loan to Trafigura for the supply of critical minerals – mainly copper - to German industrial enterprises. Then in December 2022, Euler Hermes provided a $3 billion ‘untied’ facility to Trafigura for the supply of LNG into the German market. Although these deals were initially arranged by export credit bankers, they do also involve some commodity teams. The merger of ECA involvement in the commodity sector brings home the increasingly challenging issues around the security of supply of energy and critical minerals. The transactions were highlights of the year and worthy winners of the TXF Innovative Deals Awards.

 

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