Traders up ECA funding mix
A new commodity trader is set to tap the ECA-backed loan market to diversify their fund mix amid the drive to energy transition. The deal marks a continued increase in the use of ECA debt as an instrument in trading houses’ financial toolkits.
BGN International is in talks with ECAs for financing. The Geneva and Dubai-based energy trader is currently holding discussions with financiers over a deal that is expected to reach financial close in early 2024.
According to the company website, BGN is "assisting a number of countries with energy security of supply and the energy transition, as well as supporting the export needs of LMICs (low- and middle-income countries) and other nations." If the facility is completed, BGN will follow in the footsteps of a number of other traders in diversifying its financing by tapping ECA support. Most recently Trafigura secured a total of $400 million across two revolving credit facilities backed by US Exim.
The rise of ECA-backed debt in commodity trading houses has ballooned since pre-pandemic levels, according to TXF Intelligence. Traders tapped a total of $3.454 billion in export finance in 2019 with a slight drop in those volumes the following year to $2.382 billion (2020). There was a significant uptick in the total volume of ECA-backed loans raised by traders during and in the wake of the pandemic – with over $10 billion in ECA debt on their books in 2021 and $9.621 million in 2022. This year though, export finance loans to traders mushroomed – with a total volume of $16.392 billion so far in 2023.
Untied lending has partly driven the increase in the convergence between the export finance market and commodity trade debt. Given the role metals and critical minerals are playing in accelerating energy transition, ECAs are upping support to the sector via royalty providers and by extending untied finance to traders. Untied ECA debt has become, and will continue to be, a staple instrument in commodity traders’ financial toolkits as the race to net-zero emissions by 2050 accelerates.
Miners are no stranger to raising limited/non-recourse ECA finance either. Australia-based Lake Resources is due to close on a roughly $800 million ECA-backed loan to fund its $1.2 billion Kachi lithium mine in Argentina early next year while Canadian miner Nouveau Monde Graphite is targeting a DFI/ECA-backed mine loan to finance its vertically integrated graphite and battery anode production site in Canada.
This week, Canadian miner Voyager Metals, a company fully owned by Cerrado Gold, has appointed TD Bank as initial mandated lead arranger for its UKEF-backed Mont Sorcier iron and vanadium project financing in Quebec. Societe Generale is leading the deal - which is also due to sign in early 2024 - with a pool of international banks with support from ECAs, Euler Hermes and EDC, alongside the Canadian Infrastructure Bank (CIB).
Cerrado Gold has completed the tender process for its ECA-supported non-recourse project financing for its Monte Do Carmo project in Tocantins State, Brazil, too. Canada-based Ascendant Resources is also out to market for ECA debt to fund its mine Lagoa Salgada polymetallic mine Portugal.