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April 10, 2013 7:05 pm
Trafigura, one of the world’s largest commodities trading houses, has launched its first perpetual bond, tapping the public capital market in a further sign of change in the way trading titans finance themselves.
The trading house, which last year moved its incorporation from Geneva to Singapore, raised $500m with its bond, up from an initial target of $300m. The note, which was five times subscribed, will yield a 7.65 per cent coupon.
The bond issue is the latest sign that the traditionally employee-owned commodity trading industry is opening up to new sources of capital, as European banks scale back their lending activities in the sector just as traders need more credit.
Louis Dreyfus Commodities, one of the world’s top food commodities traders, last September tapped the public capital markets for the first time in its 160-year history, raising $350m in a perpetual bond. Other commodities houses, including Mercuria, are courting investments from sovereign wealth funds and private equity investors. Bankers said oil trader Gunvor was also considering a bond.
The perpetual bond, which international accounting rules count as equity, will strengthen the balance sheet of Trafigura without diluting existing shareholders. Claude Dauphin, chief executive and one of the founders of the group, owns less than 20 per cent while more than 500 senior employees control the rest.
“We want to get the long-term liquidity while maintaining our credit standing,” Pierre Lorinet, Trafigura chief financial officer, said in an interview. “[The perpetual bond] provides us with long-term money [with an] equity treatment.”
The bond will be listed on the Singapore Exchange, forcing Trafigura to release publicly semi-annual accounts for the first time. Until now the company has only released financial information to a small group of investors and bankers.
The new sources of financing in the Swiss commodities industry are partly driven by a change in the business model of the trading houses.
Companies have moved away from their traditional role as middleman – selling and buying commodities in a business of large volumes but razor-thin margins – increasingly to become vertically integrated groups, with interest spanning production, logistics, trading and processing.
The new areas, such as investing in oil refineries, require long-term capital that the trading houses in the past did not need. Some trading houses have not opened their equity to outsiders, but are seeking bond investors.
Trafigura recently spent about $800m through its Puma Energy unit acquiring two petrol station and oil import terminal companies in Australia. The company is also investing in a refinery in India, and its mining division is ramping up capital expenditure in North and Latin America. “We continue to grow,” said Mr Lorinet, adding that most projects under way were “organic” rather than acquisitions.
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