Following Deutsche Bank’s award winning Chinese steel PXF signed in May 2012, the German bank has, together with Swiss-based steel trader Duferco, arranged a US$800m structured steel pre-payment term loan facility for the China-based Tangshan Iron & Steel Group Co, Ltd (‘Tangsteel’). Announced on 16 December 2013, this is the largest structured commodity trade financing facility ever completed for a Chinese company.
The German bank acted as the coordinating mandated lead arranger and in consultation with Duferco, secured the participation of ten international banks to structure the 24-month term loan to facilitate the pre-payment of steel products exports to Duferco Asia Pte Ltd and Duferco SA (collectively ‘Duferco’). This will be via Tangsteel’s Hong Kong-based trading platform − Sinobiz Holdings Ltd.
This facility is the third consecutive prepayment financing lead arranged by Deutsche Bank and Duferco for Tangsteel – the first closed in May 2012 for US$200m and the second in February 2013 for US$300m. DB Trustees (Hong Kong) Limited acted as the security agent and Deutsche Bank AG, Hong Kong Branch as the facility agent and account bank.
Trader to banker?
Duferco had, in May 2013, said they had been forced to take on increased risk by lending to clients who previously got credit lines themselves. “The customers are not financed by banks, they're financed by us ... Small and medium-sized companies are not getting the same level of support from the banking sector as the large trading houses do. They are starved of credit," declared CFO Thomas Patrick at a London Chamber of Commerce dinner at the time. Patrick had gone on to say that Duferco had increased its open account sales from US$1.5bn in 2009 to US$2.5bn in 2012.
So it this prepayment deal was a particular achievement. As Yidong Li, vice president of Tangsteel said, “We are pleased with the continued funding support we have received from a syndicate of banks led by Deutsche Bank, totalling US$1.3 bn, especially given the recent global economic conditions.”
Strong syndicate repairs confidence
A more up-beat Patrick commented: “Our relationship with Tangsteel is expanding rapidly and the pre-payment financing facilities we have arranged together with Deutsche Bank are a clear example of dynamic growth. Deal subscriptions have come from select relationship banks, and as such, we have been working with a strong syndicate of banks having a good understanding of both our relationship with Tangsteel and our business model.”
Faced with the problem of overcapacity at home in their steel markets, Chinese steel corporates are trying to expand their overseas markets by exporting products and cooperating with foreign traders like Duferco.