The commoditiessector and its financing. SBA Seminar for Journalists, Bern, 12 June 2012 Jacques-Olivier Thomann & Pierre Glauser

Transcription

1 The commoditiessector and its financing SBA Seminar for Journalists, Bern, 12 June 2012 Jacques-Olivier Thomann & Pierre Glauser

2 1. The commodities sector, its players and its challenges 2. Financing types and techniques 3. The banks behind these financings and the USD funding issue 2

4 A sector with diversified activities From production to shipping, warehousing and processing through to distribution Transformation Distribution Distributors Distributeurs Refineries, steelworks, mills, smelters Raffineries, Aciéries, moulins, smelters Production Producers Producteurs Stockage Sociétés de surveillance Entrepositaires Security and warehousing companies Transport Shipping lines, pipeline operators, Armateurs / Opérateurs de pipe forwarding agents... Brokers Brokers Négociants / traders / Traders / importers / Importateurs exporters / banks / Exportateurs Banques 4

5 A sector diversified across geographic zones Main oil producing countries Main wheat producing countries Main steel producing countries

6 An extremely diversified product offering With as many intrinsic features as there are products Energy Oil: crude and petroleum products Steam coal Petrochemicals Natural gas Electricity Metals & ores Steel Base metals: copper, aluminium, nickel, zinc, lead Iron ore, other ores, coking coal Precious metals: gold, silver, platinum Agricultural products Grains: wheat, corn, soya. Vegetable oils: sunflower, groundnut Tropical products: sugar, coffee, cocoa, rice Other: cotton, tobacco, fertilisers Sea produce Logistics assets Pipelines Shipping Railways Warehouses Tanks and containers Port installations 6

7 Challenging logistics Supply and demand are geographically mismatched The different grades of crude do not necessarily match the requirements of local refineries Production Consumption 7 Source: BP statistical review 2007

8 Main movements of oilin 2007 (in millions of tonnes) Ł Behindthesemovements are logistic challenges that canbe extremelycomplex

9 An example of logistic constraints Transport Production Gdansk Large-tonnage Les «gros»tankers cannot ne ship peuvent via the pas Baltic transiter Sea and par the la North mer baltique Sea et par la mer du Nord transfer => to transfert smaller sur vessels des which bateaux route de from «petites Poland»tailles to the qui vont de la Pologne àla mer North Sea du Nord. Storage 9

10 The key role played by commodity traders The trader superintends the processing, storage and transport of the commodities And finds the best logistic solutions for shipping the commodities Geographic arbitrage Commodities are shipped from production zones to consumption zones Balancing zones with surplus amounts of a particular commodity with zones having a deficit in that commodity Quality arbitrage Routing merchandise of a quality suited each country and market Shipments in accordance with the current standards and legislation Processing transactions Finding and shipping the products that are required and compatible with the processing units (refineries, steelworks, mills, smelters ) Processing commodities, case by case, to meet the specific needs of the various markets Storage transactions Maintaining inventories at strategic geographic locations Supplying, where required, the markets which consume the various commodities 10

11 The key role played by banks Offering financing and hedging solutions tailored to the commodities sector A "transactional" approach to financing: a Geneva speciality Financing a transaction until such time as the respective commodity has been delivered, sold and paid for to repay the financing, at the same time as monitoring the commodity shipped and maintaining a security over it, from end to end. Financing backed by Flows of commodities produced or to be produced Transit, pre-export, pre-financing Stocks or reserves of commodities Reserve based lending, distribution, contango, borrowing base financing Processing procedures Processing, tolling, blending And, in addition, upstream and downstream financing of fixed assets Infrastructure, acquisition and corporate financing Port and logistics financings As well as ship financing Terms ranging from 45 days to over 10 years On a bilateral or syndicate basis 11

12 Commodity trading centres throughout the world London Switzerland Dubai Hong Kong Singapore 12

13 The Lake Geneva region, a key centre for commodity trading A unique positioning No other centre can match the Lake Geneva Region for the strong positions it holds across all the key areas of the commodities sector Commodity Trading Banks Ship chartering Inspection and security Service companies (consultants, lawyers, insurance, recruitment, audit, media ) c Over 400 companies in commodity trading c to jobs relating to the sector 13

14 The Lake Geneva Region, a key centre for commodities trading Key dates First World War International organisations Second World War Positioning Egyptian cotton producers First oil crisis End of the oil majors monopoly Collapse of Soviet Union CIS International traders trading companies Oil: 1/3 of volume of oil traded 75% of Russian exports Steel Traders: 10% of global exports Banks: 60% of exports Soft commodities Number 1: cereals and vegetable oils, coffee, sugar (on an equal footing with London), cotton 60% of Russian and Ukrainian exports Players in the sector Trading companies Several hundred billion in combined revenue Approx. 400 companies including Cargill, Mercuria, Vitol, Trafigura, Louis Dreyfus, Bunge, Addax, Gunvor, Metinvest, Sucafina Banks Aprox. 10 including BNPP, Crédit Agricole, ING, Société Générale, Credit Suisse, UBS, the cantonal banks, BCP Shipping companies Over 1,200 million tonnes of commodities shipped MSC, Geogas, Promar, Riverlake... Security and inspection companies: SGS, Cotecna. Service companies Lawyers, insurance brokers, auditors... Association : the Geneva Trading and Shipping Association Positive momentum Recovery following the financial crisis More pragmatic financing Financing of the real economy Ensures logistics for and movements of commodities Ensures that markets are well supplied Contributes to the development of the emerging markets 14

15 Geneva Trading and Shipping Association 29 September 2006, creation of an Association grouping together the various players in the sector: Banks, commodity traders, shipping companies, brokers, security and inspection companies Aims of the Association To promote, represent and safeguard the interests of the sector To propose measures to enhance the functioning and the development of the sector To contribute to the promotion of the Lake Geneva Region as a centre of excellence in trading and the financing of trading Main activities Liaising with the authorities Training: autumn 2008, creation of a Master of Arts in International Trading, Commodity Finance and Shipping as well as an executive programme in Commodity Trading with the University of Geneva Studies to ascertain the centre s competitiveness with other international centres Identifying and exchanging information on the sector Establishing ad hoc task forces to deal with topics of current interest Developing an Internet-based multi-bank platform to facilitate the exchange of information and instructions between traders and their banks 15

16 The GTSA Master at a Glance Created by the University of Geneva in partnership with GTSA Divided in three semesters (24 modules of 24 hours each) Market analysis Legal environment Shipping Trading commodities Trade banking financings Hedging and risk management Commodity Finance. Taught entirely in English 1 academic teacher responsible for each module 1 or 2 guest speakers from the industry Awarded by HEC, University of Geneva Work (80%) -study (20%) formula 16

18 Commodity finance financing types Distribution Distributors, traders Working capital Inventory financing Borrowing base Production Producers Reserve base lending Pre-financing Pre-export financing Acquisition financing Export financing Processing Refineries, mills, smelters Tolling/blending Processing Pre-financing Export finance Project finance Acquisition financing Equipment financing (export) Producers, refineries, Mills, smelters Hedging solutions Producers, refineries, Mills, smelters, traders Transport Shipowners, brokers, Pipeline operators, traders Ship financing Transit financing Export financing Storage Operators, traders Inventory financing Contango 18

19 Commodity finance financing types The purpose of these financing types and techniques is to provide for all those involved in the commodity chain All financing products Risk hedging, and Arbitrage solutions geared to their needs, particularly in the emerging markets The range of products available stretches from Short-term transactional finance (< 1 year) commodity finance for companies active in trading physical commodities self -liquidating finance To medium and long-term structured finance (2 to 7 years) provided to industrial companies in the sector for their growth and development projects spans the entire range of medium and long-term structured finance for the energy and commodities sector 19

20 Commodity finance financing types Self-liquidating transactional finance Transit financing (by ship, pipeline, rail ) Finance for tolling, processing, storage.. Financing of receivables (with or without recourse) Short-term pre-financing (with or without recourse) Hedge financing Commodities Currencies Interest rates Structured corporate finance Working capital facility Revolving credit facility Borrowing base Term loan Structured products Reserve based lending (RBL) Pre-export financing (PXF) Bridge financing and other structured financing Acquisition financing 20

22 The banks behind these financings and the USD funding issue From the historic perspective, commodity trading finance has largely been provided by European banks which developed their expertise in transactional finance (in the 1970s) and applied this expertise to more structured types of financing (such as RBL ) The US banks play a merely marginal role in this type of financing. Their focus was on Finance for the majors on a corporate basis Domestic US finance Syndicates for structured transactions The Asian banks focus on intra-asiatic financing for the needs of their local clients Financing requirements are considerable (several billion each day) Practically all of this financing is provided in USD 22

23 The banks behind these financings and the USD funding issue An extremely restrictive regulatory framework: Basel III Liquidity ratio: liquidity coverage ratio (LCR) Funding ratio: net stable funding ratio (NSFR) Capital ratio: leverage ratio (LR) Ł from 4% to 7%, 9% and above Markets are diffident in light of political uncertainty and debt crisis Disappearance of the interbank market Fall in USD money market funds "Nationalist" pressures these pose problems for funding in USD and force the banks to take exceptional measures Deleveraging their balance sheets Downsizing their USD funding requirement 23

24 The commodities sector and its financing SBA Seminar for Journalists, Bern, 12 June 2012 Jacques-Olivier Thomann & Pierre Glauser