denotes premium content | Jan 6 2009 
Regular
posted 23 Feb 2005 in Volume 8 Issue 4
At just 38, Guillaume Leenhardt is responsible for negotiating transactions in one of the toughest regions in this business. In a late-night conversation from a Shanghai hotel, he talks to Michele Martensen about what it’s really like to do business in Africa and the Middle East.
Who: Guillaume Leenhardt What: Head of Energy & Commodities
Q: What was your route to commodity finance?
A: I started at Banque Indosuez in London in 1990 as a junior banker in its small commodity-finance department. We were seven at the time and I guess the bank’s London GM hardly knew what the department was cooking! Prior to that I graduated from a Masters course in Paris specialising in oil, commodities and futures markets, so what followed was quite logical.
Q: Why did you choose Paribas?
A: When I left London to return to Paris at the end of 1993, I felt Indosuez was going nowhere. So Paribas [BNP and Paribas merged in 1999] was the obvious choice as it had the entire customer base, the culture and appetite to grow in this business. I brought, what was not Paribas’s greatest forte at the time, a strong commitment to grow the business in the Middle East and Africa. In that respect I was lucky with the timing of my move, and the merger with BNP allowed us to set a much heavier footprint into the business thanks to a significantly larger balance sheet.
Now my department is made up of about 60 officers, all based in the heart of Paris but very often on the road. Their activities range from commodity trade finance to commodity structured finance, and corporate lending to oil producers, refiners and retailers, mining and metals companies, with a major focus on the Middle East and Africa.
Q: How difficult is it negotiating transactions in these markets?
A: Even though the region is tough from any standpoint, you find a host of sharp professionals there, and negotiating very often follows western patterns save for the odd local emotional/psychological feature you need to be aware of. Although it can be disturbing to newcomers, it’s also part of the fun of dealing in this area.
Q: Do you have any interesting stories you can tell us?
A: A few years back, we concluded a significant negotiation in a big African mining country for a Novative financing package. A week after we’d returned home, and as we were working towards implementation of the deal, there was a coup and the whole deal went astray. We felt a bit stupid thinking about what would have happened if it had been put in the books.
Last year, we also experienced a sort of African-Yukos situation in Madagascar, with aggressive government interference in a private-sector company. It’s when things start turning sour, for instance when owners fall out of political grace, that working in a difficult country can make matters even worse, especially as even the neatest structures can be challenged or jeopardised by defective local legal environments.
Q: Tell us more about doing commodity-finance business in this region. How do civil crises, such as last year’s unrest in the Ivory Coast, affect business?
A: Overall, commodity-structured-finance business has become extremely appealing to banks and consequently hugely competitive over the past ten years, although Africa is viewed as the most unattractive continent for many banks. The successes of the likes of Sonangol and Ghana Cocobod have allowed some prime African deals to become household names. On the other hand, the more traditional commodity-trade-finance business has become somewhat less competitive due to the reduction of credit on offer as a result of recent bank mergers.
To the best of my knowledge, no foreign bank has suffered any loss due to the events in the Ivory Coast, and no international business has encountered any noteworthy disruption (unlike many local businesses). Although, as in the previous crisis, a few banks would have reduced their risk appetite immediately after the events.
Q: So what sets Middle East/Africa apart from other regions?
A: First of all, commodities are overwhelmingly dominating in all business spheres. Then, of course, dealing with the very different political and legal environments, which call for tighter structures and a narrower range of corporates, even though, at the end of the day and as with the Madagascar story, you can never fully rely on even the neatest legal structures.
Q: Was 2004 a good year for you?
A: In 2004, of course, oil and commodity prices were very strong, which helped a lot of commodity producers reach a healthy financial condition. Only those producers that had ambitious development plans requiring additional funding came to the banking market. A lot of our historical customers didn’t show up in 2004 or only did so to enquire about asset-management services.
In that respect, 2004 was not as great a year as it could have been. Likewise, the overall hunger of investors and bankers for better-yielding assets has led them to emerging-market financings and pressurised margins, especially in the better-rated emerging countries, and new structures, involving capital market products, have resurfaced.
On a more positive note, all banks active in commodity trade finance that have been able to increase their trade-finance credit lines to cater for increased oil and commodity prices should have enjoyed 2004. I guess we were one of them.
Q: What are your expectations for 2005?
A: As long as energy and commodity prices remain on the high side, I imagine my 2004 comments would still apply in 2005.
Q: Do you have any plans to expand?
A: We are regularly hiring new talents to strengthen our commercial and support teams, and also to allow the evolution of the more senior staff within our network. Unfortunately, as we all know, from a personal finance point of view, France is not the most attractive location for young executives, but we try to compensate by offering a challenging working environment.
Q: Are there any aspects of the job you don’t enjoy?
A: To a large extent because of past shortcomings in the banking industry as a whole, there has been a process over the past decade whereby banks and bankers alike have had to perfect their awareness of compliance issues and ‘know your customer’ procedures. What happened on 9/11 has accelerated this process tremendously and made internal proceedings within our institutions somewhat heavier. Inevitably, this has affected our ability to focus on new business generation as much as we’d like, since we’ve had to redirect some of our human resources on that front.
Q: What other challenges do you face?
A: We have a well respected and rather enviable position in the Middle East/Africa marketplace so the main challenge is to retain that position while others aim at it.
We’ve experienced major business growth over the past ten years in this area. But these growth levels are no longer sustainable and the challenge is to retain our market position while maintaining a strong business-development momentum in a less fertile environment. As the business becomes more complex and intellectually challenging, we manage to preserve this momentum through more sophisticated products and transaction structures.
Q: What were your expectations of the industry starting out?
A: I had no idea how challenging and thrilling the job would become. I was fortunate to join the industry at exactly the right time and have been able to witness its tremendous development over the past 15 years. Commodity finance keeps gaining in sophistication. In the past ten years it has revealed itself as one of the fastest growing lending businesses for those banks that have invested in it.
Also, from a people’s point of view, the average commodity banker at BNP Paribas today probably wouldn’t even have heard of our activity ten years back, and gone straight to M&A, project finance or capital-markets positions.
Q: Finally, if you weren’t in this business, what would you be doing?
A: My colleagues would say I should run a travel agency. I am not so sure, but in any case, it would be something very different obviously.
