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Deal Analysis - Erdenet, Mongolia

23 June 2009

The first big ‘new money’metals deal for an emerging market producer in 2009 has been arranged by Rabobank. Jonathan Bell examines the background and detail of a classic deal that breaks the deadlock of a metals commodity banking market wrapped up in restructurings.

Read more: [Rabobank] [Ocean Partners] [Banco Espirito Santo] [Denton Wilde Sapte] [Mongolia copper] [copper concentrate] [copper commodity finance] [Erdenet] [Mongolia]

Commodity banking and new metals financings in particular, may have been severely knocked off-kilter by the global economic recession, but the recent deal for Mongolia’s Erdenet Mining Corporation (Erdenet), led principally by trader/offtaker Ocean Partners UK (OP) and Rabobank International together with Banco Espirito Santo (BES), shows that the sector has tremendous resilience with experienced arrangers ready and able to support consistent producers with secure export contracts.

The deal in question is a one-year, $55 million trader-led pre-payment financing for Mongolia’s Erdenet copper mine, located some 400 kilometers north-west of the capital Ulaanbaatar. The deal is a club arrangement, with Rabobank acting as coordinating arranger and providing $42 million of the funding. Banco Espirito Santo (BES) is providing the remaining $13 million. OP is the borrower of record, which onlends to Erdenet. As such, there is a pass-through risk, with performance risk being taken on Erdenet to produce...


Poll

Gazpromneft stunned the market this week when it was revealed pricing for their five-year $1 billion pre-export financing was rumoured to be just above 300 basis points over Libor. Is the deal likely to be a syndication success?

Yes - this seems like a sensible pricing benchmark, why not?
9%
No - are you crazy? These prices are ridiculous. What were these banks thinking?
27%
Yes - but for all the wrong reasons. A lack of other deals in the market, and the promise of future business with Gazpromneft will make it hard to ignore but don’t expect many to take up big tickets with this deal. There are much better deals out there.
64%

Quote

Until credit sanctioners can escape from their investment grade comfort zone, they’ll never enable the full potential of an STCF approach to be felt.

Aidan Applegarth, independent banking consultant - Commodity banks bounce back, December 2009