Best Soft Commodity Finance Bank: Fortis

Runner-up: Garanti Bankasi
Commended: Natixis
2007 Winner: Fortis

In soft commodities, there are few banks that come close to Fortis. And in the TFR Awards for Best Soft Commodity Finance Bank it is well-established as the one to beat: this is its fourth win in a row.

That success can be put down to the knowledge, experience and hard work of the soft commodities team at Fortis. “We believe that the secret of our success is the partnership with our clients. As a result, our business model, or lending criteria, has grown gradually to cater to the changing needs of our customers,” says Paul Schuilwerve, Managing Director & Global Head, Commodities.

Fortis places a strong emphasis on understanding clients’ businesses inside and out, adjusting products and services to ever-changing trade patterns and customer needs. “Our strong relationships with our customers and our global expertise – our focus on food and agri-commodities – means that we are the first port of call for clients. This gives us the opportunity to play an advisory role and, hence, makes us important to clients,” he says.

Those clients have needed the services of a good investment bank more than ever during the past 18 months, as commodity prices have boomed. “Higher prices have substantially affected the operations of our customers, both on physical trade and on financial hedging, increasing their working capital needs,” says Schuilwerve.

His team has therefore been involved in a slew of vital commodities deals during the past year. These include, among others, a five-year $1.7bn working capital revolving credit for Gavilon (formerly Conagra Trade), a $600m deal with Bunge Finance Europe, and a $1.3bn syndicated facility for ED&F Man.

These deals reflect how clients are expanding and becoming more vertically integrated. “The role and function of the traders/merchants is changing and we are focusing on opportunities that also support producers, processors and selected packaged food companies, whose business model is exposed to significant commodity and agricultural risk.

“We also intend to follow our clients as they evolve from strictly commodity trade finance through more value-added corporate and investment banking products. And we have a geographic focus on those regions that will feed the world tomorrow. For example, Brazil is well positioned as a key commodity-origination market, having strong competitive advantages compared to others players, as well as political and economical stability. Demand pull is coming from Asia, with India and China being the major catalysts in this growth.

“We have also seen increasing volatility in the market and this stimulates increasing vigilance as balance sheets are becoming more stretched in the environment where prices for agri-commodities have increased sharply,” says Schuilwerve.

In the current environment, the casual observer might think that commodities producers and traders are laughing all the way to the bank, given the high prices. That is not necessarily the case. “The substantial increase in prices has strained liquidity for all participants in the sector. Therefore, many commodity firms have been forced to go back to the market to increase working-capital lines from banks in order to finance their physical as well as margin call requirements

“The cost of credit has, in turn, increased in a number of transactions. Profitability for many food processors has suffered due to higher commodity input costs (such as energy costs) and an inability to immediately pass on higher end-prices to consumers. In the current market, the ability to raise capital (either equity or financing) has become an important differentiating advantage for the winners of tomorrow.”

The Fortis team has expanded accordingly to accommodate this booming business, especially in Brazil, and improving coverage in Russia and Kazakhstan. “With the expansion of our activities in the Gulf Region (Dubai) and Australia we expect to be able to increase our client coverage there as well in the near future,” says Schuilwerve.

“Higher prices substantially affected the operations of our customers, both on physical trade and on financial hedging, increasing their working capital needs.”

Paul Schuilwerve, Fortis