Innovative thinking needed to plug the commodity trade financing gap

Innovative thinking needed to plug the commodity trade financing gap

The shock news that BNP Paribas SA – one of the largest lenders to global commodity traders – has stopped financing any new commodity trade finance deals will only exacerbate the liquidity issues many commodities trading houses are now facing. BNPP’s announcement comes hot on the heels of Société Générale’s decision to close its commodities desk in Singapore following the collapse of oil trader Hin Leong, to which it had a painful US $240m exposure.

Banks were already pulling back from commodities in Asia, even before the coronavirus pandemic. Over the past few years, the industry has been rocked by several high-profile collapses and scandals including the spectacular downfall of Noble Group, one of the biggest names in the industry. Once worth $6 billion, it has seen its Moody’s rating tumble to junk status.

When even giants like Noble House are not safe bets, financiers are increasingly unwilling to hold risk in the current uncertain environment. There is a real danger that smaller trading houses will now find it near impossible to obtain finance from traditional sources. They will need to consider alternative financing providers to plug the huge funding gap created by the big players pulling out. As Eran Charit, Head of Structured and Capital Solutions EMEA for Aon, remarked, “Necessity is the mother of invention.”

It’s against this backdrop that I decided to set up my venture Cubri Services. A new name on the scene, among our range of services we introduce trading companies to non-traditional finance providers. While the Cubri name may be unfamiliar to some, our team has worked in the commodities trading industry for many years, during which time they’ve built considerable knowledge and strong relationships.

Cubri Services offers the traditional financing channels and independent consultancy advice you’d expect. But what sets us apart is our ability to access an extensive network of non-traditional payment providers such as cryptocurrency exchanges, wallet providers and crypto payment gateways.

We can help our clients reduce their financing costs by drawing up a roadmap to secure instant cryptocurrency payments over blockchain. In the current climate, these innovative financing providers are more willing than traditional funding sources to invest in low equity propositions without charging hefty transaction fees.

For smaller commodities trading houses now facing a funding crunch, the appeal of a non-traditional provider is clear: no settlement waiting periods and no delays.

As well as financing, we can draw on our knowledge of the market to advise trading companies how to manoeuvre in the current market environment to come out ahead.

If you’d like to find out more or discuss your financing requirements, please get in touch to talk in confidence.