Commodity finance comprises two key products. The first is commodity-linked loans in the agriculture, oil and gas and mining industries where the lender has the future production or reserves of the commodity as security. These types of deal can be reserves-based loans, pre-export facilities, prepayment facilities, or even streaming, royalty-based loans and factoring. The second are very large unsecured term loan and revolving credit facilities provided annually by commercial banks to the major commodity trading houses and producers – Glencore, Gunvor, Trafigura, Vitol, ADM, Bunge and Castleton for example. These loans, effectively working capital facilities, also enable the major traders to provide loans to commodity producers that lack liquidity, thus ensuring security of commodity supplies and additional profits from that lending due to the arbitrage between the cost of debt for the major traders and what they can on-lend at.
There has been innovation within commodity and trade finance structures as market participants and practitioners get more ambitious with the tools available to them. TXF caught up with Catherine Lang-Anderson, counsel at Allen & Overy, to discuss such innovations alongside other topics like sanctions, M&A activity in the commodities sector and blockchain.
With stringent regulation and increasingly complex transactions pitched against borrowers’ expectations for rapid decision making, the pressures on due diligence are at an all-time high. Matt Reed, Associate Director at RedRidge Diligence Services, discusses the latest trends in how capital providers in the trade and project finance space are managing these pressures.
Making sense of the bigger picture of the state of the global commodity markets is no easy task. But here, Jonathan Bell meets up with a long-time friend and real commodity guru in Geneva - Jean-Francois Lambert, former head of HSBC commodity finance, and now founder and managing partner of Lambert Commodities.