Commodities giant Trafigura Group doubled the size of a bank loan facility to more than $2 billion to weather extreme price movements sparked by the war in Ukraine.
Trafigura will be able to borrow the equivalent of $2.3 billion in multiple currencies, it said Wednesday, up from $1.2 billion set in early March. The company said it reared the initial snail in record time to deal with the way the war had lashed markets.
Commodity traders typically thrive when markets are volatile. But big moves in oil, natural gas and metals tie up huge amounts of cash. That increases the borrowing needs of companies like Trafigura, which rely on money from banks to fund shipments around the world.
Trafigura, in particular, has borrowed heavily over the past decade to fund its growth into one of the world’s largest independent oil traders. The Singapore-based and Geneva-run company had $45.2 billion in debt at the end of fiscal 2021, compared to $3.1 billion in net income, according to its annual report.
The company is one of the main exporters of Russian oil, along with competitor Vitol, and has long-standing trading relationships with the state-backed Rosneft Oil Co. It acquired a 10 percent stake in Rosneft’s Arctic oil project Vostok for €7 billion in 2020 to a value of $7.7 billion current exchange rates.
Of this, Trafigura invested 1.5 billion euros from its own funds. The rest was borrowed from banks run by the Credit Bank of Moscow. Trafigura said this month it was reviewing the Vostok investment.
War-fuelled volatility in commodity markets continued into Wednesday. Brent crude futures, the benchmark in international energy markets, rose 3% to around $119 a barrel.
Prices hit $139 a barrel in early March, then slipped back below $100 and then recovered. Traders are concerned that up to 40% of Russia’s oil exports will miss global markets as refiners in the West, Japan and elsewhere are reluctant to pay Moscow for energy. The US has banned Russian oil imports and support for an embargo is growing in the European Union.
Big price swings are a headache for traders like Trafigura. When shipping oil or gas shipments, traders sell futures on exchanges to secure prices. To do this, they deposit collateral, so-called initial margins.
Exchanges have been increasing margin requirements since the war began so they have more collateral in case of a default. Banks, sitting between traders and exchanges, require their customers to have additional margin on top of what trading venues charge.
Margin requirements are particularly high on the European natural gas market, which is used by traders to secure liquefied natural gas deliveries. Speaking at a Financial Times event Tuesday, Vitol CEO Russell Hardy said traders would have to pay €80 in initial margin to hedge €97 per megawatt-hour of contracts.
Trafigura chief executive Jeremy Weir said rising hedging costs are affecting underlying commodity flows.
Trafigura is privately held, but its bonds have come under pressure over concerns about the company’s ability to sell Russian oil and its access to financing. A bond maturing in 2025 was trading at 89 cents to the dollar on Tuesday, compared to 102 cents on the eve of the invasion, according to AdvantageData.
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Appeared in the print edition of March 24, 2022 as “Oil-Trading Partner of Russia Raises New Cash”.
https://www.wsj.com/articles/trafigura-russias-key-oil-trading-partner-raises-new-slug-of-cash-11648046666?mod=rss_markets_main Trafigura, a major oil trading partner of Russia, is raising new cash