Of yuan and yen
Commodities trading is a capital-intensive business. With oil at more than US$100 a barrel and copper trading anywhere between US$6,000 and US$7,000 a tonne, Trafigura needed significant reserves of working capital to maintain flexibility in the market. It has found the debt markets highly receptive.
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Trafigura’s capital requirements include working capital and longer-term development financing. While the capital markets are available for short-term working capital requirements, commodity financing is traditionally the preserve of the bank markets.
But as Trafigura has grown, so have its capital requirements, and its ambitions in the capital markets have grown commensurately, offering access to longer maturities useful for capex programmes, project financing or acquisitions. So have its relationships: while many banks are reducing their balance sheets and focusing on core relationships, Trafigura’s relationships are multiplying. In 2007 it had around 40–45 relationship banks and this has now grown to about 130.
Trafigura’s only trip to the capital markets in the 12-month period was in November, when it priced a new five-year senior unsecured bond issue. The unrated Reg S issue raised €500m with a 5.25% coupon, drawing €1.5bn of orders.
“Our balance sheet is evolving towards more fixed assets and we will continue to be increasingly active in capital markets, which helps us from an asset and liability perspective,” said Christophe Salmon, CFO for Trafigura in EMEA. “We have issued €500m from a €2bn programme, which gives us the flexibility to go back to the market whenever the need arises with a minimal execution period.”
However, it is the loan market that supplies the bread and butter of Trafigura’s funding. The past 12 months have seen the borrower make numerous incursions into this market, with some more notable forays into less familiar currencies too.
In October Trafigura Beheer completed a US$1.86bn revolving credit and term loan, the first commodities loan with a renminbi tranche, which was upsized due to high demand from US$1.2bn. While Trafigura needed capital for trading and refinancing an October 2012 facility, it was also exploiting high levels of liquidity in the Chinese banking sector. It was also the first time a commodities house had used a five-year tenor since the dollar squeeze of late 2011.
The borrowing comprised a one-year renminbi term loan piece with a margin of 160bp over CNH Hibor, and three US dollar tranches: a 364-day US dollar revolving credit with two 364-day extension options, with a margin of 115bp over Libor, and three-year and five-year term loans with margins of 170bp and 235bp, respectively. The renminbi component raised US$150m-equivalent.
Its other significant foray into another currency came in March when Trafigura Beheer closed a ¥25.5bn (US$250m), three-year term loan, its first significantly sized yen-denominated loan. Bank of Tokyo-Mitsubishi UFJ acted as sole bookrunner and mandated lead arranger.
Trafigura had been the first international commodity firm to tap the yen loan market, with a ¥9bn financing in 2012. This deal established Samurais as a core and recurring funding instrument. “We want to work with lenders or investors who understand our business, so we don’t want to do one-offs, we want to do repeat issues,” said Salmon.
This is not a question of currency diversification: commodities are overwhelmingly US dollar-denominated. Instead, Trafigura sought pockets of liquidity in currencies than could be swapped back into dollars relatively cheaply.
“As far as currencies are concerned, we want to be selective in the type of markets we tap for swap cost reasons,” said Salmon. Apart from the US dollar markets, the major currencies available are therefore euros, yen and renminbi, he said.