In August ABN AMRO announced that it will exit the commodity trade finance market, while BNP Paribas, Société Générale and Natixis are scaling back or restructuring their operations. These banks are part of a group of European banks that have led this market for the past half a century. The market is changing….and so are its participants.
Rigorous internal compliance and regulatory procedures resulting from Basel IV capital requirements, together with a low interest rate environment, have contributed to banks’ reduced appetite. Many banks have also suffered big losses as a result of a string of recent collapses amidst allegations of fraud – such as the Hin Leong collapse, which left 23 banks with combined losses of $3.5bn, and the Agritrade collapse, which left 20 banks with almost $1bn of losses. It therefore comes as no surprise that the large banks who remain in the market will increasingly focus on the highest-grade corporates. These corporates make up roughly 10% of the demand in the market.
The shortage of funding for the remaining 90% of corporates will, to some extent, be taken up by multi-lateral lenders, smaller banks and alternative credit providers. The past few years have seen the emergence in the market of private debt funds. The big trading houses, who remain able to borrow under their large RCFs, are also using borrowed funds to on-lend to, or to enter into prepayment arrangements with, commodity producers and other trading partners.
In a market which is under increasing financial pressure, cost-effective and targeted legal advice from senior lawyers who have deep product knowledge and sound judgment is essential. It is particularly important for recent arrivals in the market, who may not have the benefit of the in-house legal teams found in the commodities departments of large banks. Similarly, borrowers will wish to ensure that their transactions are properly structured, and that documentation is negotiated to reflect a workable balance between lenders’ requirements and a company’s need to retain flexibility in the conduct of its business. Legal advice of this nature requires highly experienced practitioners who understand their client’s business and who have an equally good understanding of lenders’ requirements.
Bott Van Kesteren Partners Limited (BVK) was launched in response to market demand for high quality, value-for-money legal advice. Before BVK, Michael Bott and Mirthe van Kesteren were senior partners in a Magic Circle firm, where they launched and led its CIS banking practice and London-based emerging markets and commodity trade finance practices, respectively. Between them, the team has more than 50 years’ experience advising lenders and borrowers on commodities-backed, receivables-backed, supply chain and other structured financings across Europe and the emerging markets.
You may be at the early stages of a new transaction or have an existing transaction which calls for fresh advice from experienced lawyers. Please contact us – we will be delighted to hear from you.
Bott Van Kesteren Partners Limited
[email protected]