2019 Annual Report
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Our funding strategy matches sources of funding to ﬁnancing requirements. We have developed diverse ﬁnancing strategies that maximise scalability, ﬂexibility and business resilience.
Trafigura’s activities require substantial amounts of capital.
We source, store, blend and deliver commodities around the globe.
We invest in terminals, logistics and physical infrastructure to improve the efficiency of our trading operations.
Our diversified funding model allows us to continue to operate effectively and successfully in all market conditions. Its scalability and structure protects the business from market shocks and provides flexibility and the ability to capitalise on opportunities as they arise.
We have put a global programme of flexible, short-term facilities in place to finance our day-to-day operations and a programme of longer-term, corporate facilities to finance our asset acquisition and other corporate requirements.
Available funding exceeds our everyday requirements. This provides headroom for unusual market conditions. We also maintain substantial cash balances to ensure we will always meet day-to-day capital commitments, even in unexpected circumstances.
We diversify both the sources and the structure of our financing to minimise risk and maximise operational effectiveness.
We raise funds in a variety of markets in the US, Europe and Asia-Pacific. We have lending arrangements in place with 135 banks around the world. We are therefore not constrained by credit restrictions for specific financial institutions, sectors or regions.
We raise capital with a range of repayment schedules, from very short-term facilities to maturities greater than 10 years. This spreads our exposure across the yield curve.
As a matter of policy, we match the type of financing to the business requirement. We have established a three-pillar funding structure to put this into practice.
We use short-term financing for trading. These loans are secured against the underlying physical commodities. Lines are marked-to-market each week so the level of financing tracks the value of the underlying collateral as prices change. We raise longer-term debt to finance fixed assets and investments.
As a private company relying on debt to finance its operations, Trafigura’s performance is closely scrutinised by a large group of banks worldwide. We comply with the financial covenants attached to our syndicated bank facilities. Members of the finance team regularly meet our banks. These meetings often include operationally focused personnel (from Credit, Compliance and Trading Desks) who provide additional insight into our business model. As an issuer of publicly listed debt, we also meet the transparency requirements of our bond investors. Our interim and full-year reports are published online. We hold regular calls and presentations to update investors and respond to specific queries directly.
All transaction-based lending is fully collateralised. We fund day-to-day trading through one-to-one (i.e., bilateral) agreements with individual banks.
For most transactions, this starts with a bank issuing letter of credit (LC) on behalf of the buyer in favour of the seller. The physical commodity being financed by the LC is specified as security. On delivery, the seller of the commodity draws down the LC, which then converts into a secured loan from the LC-issuing bank. The loan is marked-to-market at least weekly until maturity so that the amount being financed always corresponds to the value of the underlying commodity. This secured loan is repaid by the cash flow from the on-sale of the commodity from Trafigura to the end-buyer, with a receivable created once the sale has been agreed. This receivable is either repaid when the counterparty pays Trafigura according to the credit terms of the transaction, or from the securitisation programme if the receivable is sold into the programme.
Trafigura manages a trade receivables securitisation programme through a separately capitalised special purpose vehicle (SPV). The programme further diversifies Trafigura’s funding sources and, thanks to its investment-grade ratings from Moody’s and S&P, is a cost-effective financing mechanism.
Most trades are financed on a trade-by-trade basis with bilateral trade finance loans, but Trafigura can fund eligible receivables once an invoice has been issued by selling them to the SPV.
Securitising our receivables accelerates the rotation of existing credit lines, since secured bilateral loans can be repaid faster with the programme proceeds.
Trafigura invests in fixed assets to support our trading activity. We finance these with long-term debt adhering to our policy of matching assets with liabilities. We issue securities and negotiate lending facilities in diverse markets. Funding sources include eurobonds, perpetuals, revolving credit facilities, private placements and term loans.
Trafigura does not hold a public rating and does not seek to obtain one. The Group focuses on strengthening its balance sheet through long-term value creation.
We obtain our funding from stakeholders who understand our business model in detail and whose investment decisions are not driven by ratings. We have significantly expanded our sources of financing over the years by maintaining a sustainable credit standing that is consistent with an investment-grade profile.
Likewise, the absence of a rating means that Trafigura’s business and investment decisions are not taken on the basis of maintaining a particular rating level, something which becomes particularly important at times of high-market volatility.