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After a year marked by sweeping organisational change and an impressive selection of landmark deals in oil, metals and soft commodities, Natexis Banques Populaires is riding high. So what’s next? Kathleen Williams asks Valerie Boas, head of distribution for commodities at the bank.

Natexis Banques Populaires is the fifth largest arranger of commodity financings worldwide. The bank’s trade-finance activity dates back several decades. “While we have a strong expertise in oil, gas and metals, we also have a strong focus on soft commodities because that’s where it all started for us,” says Valerie Boas, head of distribution of commodities finance, in the bank’s Paris office.

Indeed, it has a strong track-record in commodity finance. Most notably, in 2004, it acted on high-profile deals such as the record $850m Ghana Cocobod facility, Sonangol’s $2.3bn oil deal and the jumbo $800m Rusal loan – all are TFR 2004 Deal of the Year winners (see TFR, Deals of the Year, February 2005).

Natexis has constantly strived to adapt its product line to service the needs of the market as part of its strategy for growth and, in so doing, has developed products such as export pre-finance. From the traditional letters of credit to more sophisticated instruments like reserve-based lending in oil (where a borrowing-base mechanism is utilised when lending money to customers, which is calculated by discounting the expected cash flows of the reserves of oil), and hedging capabilities in metals, Natexis plans to continue to diversify its client base with the use of these and other cutting-edge and innovative techniques. “The emphasis is on adjusting our products to meet the needs of both our larger existing clients and new, smaller companies as we grow our client base,” explains Boas.

Natexis is the result of the progressive integration of Crédit National, Banque Française du Commerce Extérieur and Caisse Centrale des Banques Populaires. More recently, the group acquired Coface that not only expanded its service-offering to corporate clients in credit insurance and credit management services, but also extended its geographic reach. Having experienced high levels of growth over recent years, which Boas attributes to a dynamic and ‘on the ground’ approach to looking for business, Natexis instigated an organisational re-structure in mid-2004 aimed at dismantling the barriers separating its various businesses.

Corporate and Institutional Banking and Markets (CIBM) is Natexis’s new business line, under which the domestic and international corporate divisions fall, along with commodities, mergers and acquisitions, global debt and derivatives markets, and the equity group. The shake-up has created distinct services dedicated to transaction and payment processing to help companies and institutional investors gain efficiency in their day-to-day operations. “The restructure has been incredibly positive for us,” says Boas. “We were given the status of a full division – a promotion that demonstrates recognition of the work we’ve done over the past five years and one that shows the bank values our division’s contribution,” she adds. Despite the weaker dollar, CIBM is expected to deliver a 5% growth in net banking income (8% at constant dollar rates) for its year-end results, driven by a recovery in equity business and, of course, its excellent performance in structured financing during 2004.

Boas goes on to explain that business tends to be divided into two sections: the structured business where they deal directly with the producers and build structures to mitigate the country, payment and performance risks; and corporate (or transaction) risk where its credit counterparties are trading companies and money is lent on a secured basis (ie, ownership is retained over the inventories of goods throughout the transaction). “We see growth potential in both of these areas because trading companies have had to become more inventive and they now have ambitious growth plans. It also has financing needs that are becoming more substantial as the price of commodities increases. So that is certainly one driver,” she says. “And borrowers/producers are also keen to grow, so acquisition projects could possibly fuel the financial markets, which are fairly depressed overall.”

Despite having to contend with strong commodity prices and a liquid market, Boas says trade-finance business has been good. However, strong prices mean structures are becoming more flexible – a move that has already been witnessed in Russia and Latin America. “It’s not something that we want, but it’s a trend with which we as trade financiers have to live with,” says Boas.

Other factors affecting Natexis’s trade-finance business include the impact of high oil prices on commodity prices, and the confirmation of Russia as an increasingly sophisticated market following decisions by Moody’s and Standard and Poor’s to award it an investment-grade rating. According to Boas, this has been a significant development for the bank. Sustained demand from China has also fuelled global demand for certain commodities (such as steel and oil), thus contributing to continuous price hikes. “Generally, commodity markets around the globe are strong at the moment because the prices warrant investments in the industrial chains that support the commodities. And, given current price levels, it is increasingly making more economic sense to produce in areas that were previously disregarded,” she adds.

Aside from Russia, Natexis has traditionally focused on regions such as Kazakhstan, Uzbekistan, Turkmenistan, Kyrgyzstan, Tajikistan and Iran. Africa is another large market, as is Latin America, where the bank has already seen a lot of business this year. Asia is a strong market too. “We have not really found any markets to be particularly disappointing of late, but we would like to think that we know how to select the people with whom we do business. Typically, the companies that we choose are counterparties that tend to perform,” says Boas.

However, Boas acknowledges it’s easy to fall into the trap of lending too much money on terms that are a little too flexible because prices are so high and company cash flows look so good. “We will have to make sure that we continue to be diligent in the way that we select the risks and structure transactions. The challenge is to remain discerning of the types of risk with which we are associated,” she says.