Sucafina: the benchmark for the digital borrowing database
Signed in mid-May, the two-year, $ 500 million sustainability loan base is Swiss coffee trader Sucafina’s largest loan to date – growing from an initial $ 400 million after being considerably oversubscribed.
Including two options to extend up to one year, the proceeds will be used to refinance the trader’s two-year, $ 300 million senior secured borrowing base in 2019, and to fund trading operations in the years to come, as well as another existing Brazilian borrowing base and bilateral loans.
ING took the lead role in syndication as sole bookrunner, documentation coordinator and agent, facilities officer, security guard and overdraft bank, thus strengthening its involvement from the 2019 agreement. “The The role of security agency is particularly interesting within the framework of this agreement, given the collaboration with Komgo and the digitization of the process ”, explains to TXF Maartin Koning, responsible for the structured financing of raw materials at ING.
Citi, Rabobank and Natixis have joined ING as Mandated Principal Organizers (MLAs) for pre-syndication bookkeeping, along with Credit Suisse, HSBC, Raiffeisen Bank, Société Générale, UBS and UniCredit in the same capacity. CA Indosuez, ICBC and SMBC were MLAs, with DZ Bank as lead arranger; and Banque Internationale de Commerce Bred and Banque Cantonale de Genève as arrangers. HFW acted as legal counsel for Sucafina while Norton Rose Fulbright acted for the banks.
BNP and ABN Amro both left the facility after announcing their cut in commodity funding last year (BNP being the former security guard), with new banks Citi, Raiffeisen Bank, UniCredit, CA Indosuez, ICBC, SMBC, DZ Bank lending in new syndication for the first time. According to a banker about the agreement, the lenders see the withdrawal of BNP and ABN from the space as an opportunity to strengthen their involvement in the agro-soft sector.
The beginnings of the Komgo borrowing base
Brand new to the deal, trade finance blockchain platform Komgo has taken on the role of digital agent, making Sucafina’s installation the first of its kind. Borrowing base structures sadly require a lot of data sources, and comparing that data with the borrowing base rules, which is typically done by the agent store and requires a lot of manual work, such as collecting warehouse and inventory information via email and keeping track of this information on paper and spreadsheets.
“All of this work has to be done manually before the borrower can access the funds, which is one of the biggest problems for a borrower base,” Kris Van Broekhoven, CFO of Komgo, told TXF. “What Komgo has developed, together with Sucafina and ING, is a system that automates a lot of this data collection and the reconciliation of that data.”
For example, throughout the maturity of this borrowing base, Sucafina will have to regularly send requests to its 80 warehouses to know the latest inventory positions. “The tool will allow them to do it with just one click,” explains Van Broekhoven. This sends a message to each warehouse, allowing them to enter their data consistently, via a link, which returns to Sucafina as structured data.
The beauty of the system is that it presents the data in a computer readable format. “This means that the tool can compare warehouse data and Sucafina data for invoices, and automatically tells the agent’s bank which invoices are overdue or which position is under-limit – so much less. work to be done by the agent. and the borrower, ”says Van Broekhoven. “The system is focused on operational efficiency, reducing human error, and providing audit trails that people can come back to and trust.”
While this is the first time Komgo has taken on this role on a loan, the company is already in discussions with a number of other companies with basic loan loans to explore whether the tool can be used. reproduced and adapted to their specific installations.
Komgo also intends to apply the tool beyond the basic borrowing structure. “Sucafina is very digital and environmentally conscious and wanted to be the first to try something new with us,” Van Broekhoven told TXF. “But we strongly believe that it will be a useful tool for the whole industry in the near future, not only in the basics of borrowing, but also in reserve-based lending and other types of capital-based financing. assets ”.
This year, the sustainability feature is not a new element of the deal, which was initially introduced in 2019. But Sucafina has set itself additional ESG challenges in addition to adjusting existing KPIs. , bringing the percentage of Fairtrade certified farmers to 5. % per year, and in addition to taking new measures to reduce the carbon footprint and deforestation in their seven countries of origin, including Colombia, East Africa, Vietnam and Indonesia. The facility also has new reporting obligations for Sucafina to share information on its carbon footprint with its banks and shareholders.
Additionally, Sucafina’s ESG initiatives go beyond its borrowing base – such as its joint venture with IBM Food Trust Platform – Farmer Connect – which is a tech startup that provides traceability solutions from the farm to the consumer. “This allows consumers to have as direct a relationship as possible with producer farmers, which is extraordinary when you think about it,” explains Olivier Bazin, partner at HFW at TXF. “Five years ago that would have been considered a crazy idea.”
According to Bazin, the softs space is one step ahead of other commodity sectors in terms of innovation, transparency and supply chain traceability. “Raw materials are an interesting sector because there is a human end consumer who is interested in traceability,” he says. “Consumers are now asking for a lot more details about where their coffee or food comes from, are farmers being paid fairly and what the environmental impact is in terms of deforestation or pesticide use. In the petroleum and metals sectors, there is less questioning by the end consumer. “
Maybe in the near future it will even be possible to combine the digitization of more than one aspect of a deal like this. “If you try to conceptually visualize how the role of digitization will evolve over time, we might see a digital integration between funding structures and supply chain auditing – but we’re not quite there yet. quite there, ”says Koning.
“I cannot imagine that within a few years, the vast majority of lending bases will not be digitized. I’m not saying that every borrowing base will follow the exact same tool used here, maybe some will go further. But this is really the way to go, ”he concludes.