• More firepower

February 2019

As customers of Deutsche Bank’s structured commodity trade finance (SCTF) services return for more liquidity, flow highlights key deals from 2018 in a journey from the North Sea to Greater China

Each year at Deutsche Bank, the trade finance structuring year tells a different story and we share our take on the market with our commodity finance community.

The bank has led on reopening the Ukrainian market with metals and mining corporates Metinvest and Ferrexpo, and turns up on a regular basis for the African elephants such as Angola’s Sonangol. In addition, the German commitment to China (home to their first overseas office in 1872 (Shanghai) is on show again with the prepayment facilities for Hangzhou Zhengcai and Shandong Qingyuan.

When it comes to the black stuff, Deutsche Bank has also played a leading role in reserves-based lending (RBL) transactions for independent North Sea producers such as Neptune Energy in France, and Vår Energi in Norway.

In addition to these more high profile transactions are those that are less visible. This includes, says John MacNamara, Global Head of Structured Commodity Trade Finance, “the bank’s much less visible steady journey around the traders from the big independents in Switzerland, the US and Singapore, to the in-house trading subsidiaries of the big natural resources producers and importers, stepping up in their syndicated borrowing bases, prepayments and revolving credit facilities, increasing bilateral flow lines, and generally working hard to put more firepower into play in more places, whether emerging or developed markets”.

John MacNamara

Global Head of Structured Commodity Trade Finance, Global Transaction Banking

Reserves based lending (RBL) in the North Sea

The RBL is a senior secured loan facility where the available amount is derived using a borrowing base approach. The borrowing base is re-determined on annual basis using the latest reserves report prepared by independent technical consultants. It typically provides for senior secured revolving borrowing base facilities where money is lent against, and repaid by, future cash flows generated from an approved basket of upstream assets, aggregated into a borrowing base. The RBL has first-ranking asset level security.

This structure is just one way that Deutsche Bank works closely with clients in the early stages of their development as they build towards investment grade rating status.

Vår Energi


Vår Energi ‘s Balder (left) and Ringhorne (right) fields in the North Sea (Photos courtesy of Vår Energi)

Now the largest independent exploration and production (E&P) company operating on the Norwegian Continental shelf after oil majors and the Norways’ state-owned Equinor (formerly Statoil), Vår Energi was formed of Italian-based energy company Eni and private equity investor Point Resources AS (HitecVision) that merged into the renamed Vår Energi AS.

In advance of the M&A deal closure, Vår Energi raised a six-year senior RBL facility of US$3bn to finance the future growth of the new entity.  The repayment schedule is back-ended with a four-year grace period, followed by two annual repayments of 25% and a 50% bullet at maturity. The facility includes a US$200m letter of credit (LC) sublimit.

The merger closed on 10 December 2018 with Eni International BV owning 69.6% and Point Resources Holding AS 30.4% of Vår Energi. During 2018, production was around 180 thousand barrels of oil equivalent per day (kboepd) coming from 17 producing fields and four development fields all located in Norway. The company has a significant upside with a plan to grow the daily production to 250kboepd in the next five years. Its 800 employees are based in the Stavanger Region. “We are proud to be a major E&P player on the Norwegian shelf with operated production across all major areas; the Balder and Ringhorne fields in the North Sea, the Marulk field in the Norwegian Sea, and the Goliat field in the Barents Sea. We also have an extensive onshore presence with offices in Hammerfest, Oslo and Stavanger. This position, including a robust organisation, makes the company fit for continued safe operations and future business growth,” said Kristin Kragseth, CEO of Vår Energy at the time.

Norway is one of the world’s largest exporters of oil. Ever since the discovery of North Sea oil in Norwegian waters in the late 1960s, exports of oil and gas have become very important elements to the Norwegian economy. The Norwegian Sovereign Wealth Fund (officially known as the Government Pension Fund of Norway) surged past US$1trn in 2017, thanks to the fact that more than 50% of Norwegian oil production flowed through Statoil (now Equinor), in which the state has a majority share and state ownership of assets via the State Direct Financial Interest (SDFI) held through Petoro (wholly owned by the state).

Neptune Energy

Neptune is another example of a private equity- backed company with oil and gas knowledge that is successful in acquiring assets in the North Sea from oil majors (Norway’s Vår Energi being another example). This has been a recurrent trend in the oil and gas industry and so far it’s proved to be a successful business model.


Gjøa is a semi-submersible platform in the Northern North Sea (Photo by Jan Inge Haga, courtesy Neptune Energy)

A joint venture formed by the Carlyle Group, CVC Capital Partners and China Investments Corporation, Neptune acquired the oil and gas assets of Engie, the French utility company on 15 February 2018. These are located mainly in Western Europe (Norway, Germany, Netherlands and the UK) and to a lesser extent in Indonesia. At the time, Sam Laidlaw, Executive Chairman of Neptune Energy Group commented, “I am pleased to announce the completion of this significant achievement, which is the result of some three year’s work and marks a new beginning for Neptune Energy. Building on the success and hard work of the EPI team and leveraging its strong portfolio of assets, we aim to generate long term sustained value for the countries in which we operate, our employees and for our investors in order to create a leading international independent E&P company within the next five years.” 

After completing the acquisition of the Engie assets, Neptune now controls a diversified portfolio of producing oil and gas upstream assets with very strong operational track record. The acquisition was transformational for the company as it is now producing ca. 160,000 barrels of oil per day (bbl/d) from its acquired assets, and the seven-year RBL signed on 15 February 2018 was instrumental in completing the acquisition. Deutsche Bank acted as a co-ordinating mandated lead arranger (MLA) with ten other banks.

Out of China

Another feature of the 2018 deal flow was the enthusiasm of Deutsche Bank Chinese corporate clients for the offshore market and the deployment of prepayment and pre-export finance structures. Two examples are included here.

Hangzhou Jinjiang

One of China’s largest conglomerates, Hangzhou Jinjiang, with business interests in the nonferrous metals, green energy, chemicals and trading business, was looking at ways to fund working capital requirements for its new Inner Mongolia-based aluminium smelter Inner Mongolia Jinlian Aluminium Material. The group started business in alumina refining before venturing into downstream aluminium smelting and is one of the largest alumina suppliers in China market. Hangzhou Zhengcai is Hangzhou Jinjiang’s flagship entity holding the group’s core non-ferrous assets including alumina and aluminium production assets.

The group needed to tap the liquid USD offshore market and diversify its pool of banks and had already raised onshore funding by tapping the SCTF market with two Deutsche Bank-led three-year syndicated structured alumina prepayment financings back in 2010 and 2014. For the 2018 US$160m syndicated prepayment facility, Deutsche Bank devised a structure which enabled Hangzhou Zhengcai acting as borrower under a prepayment structure to raise long-term USD funding as foreign debt against an off-take contract with Glencore China Limited (GCL), a longstanding business partner who acted as off-taker in the two previous deals.

Signed on 7 August 2018, this is the first time ever that Hangzhou Zhengcai raised funding in the offshore USD market, despite the challenges of supply-side reform. For further background on the aluminium climate, see flow’s profile of Qiya in the article, ‘Blue-sky thinking’ that explains how efficiency and cost reduction is now the focus rather than building as much capacity as possible.

The facility is of a self-liquidating nature whereby Zhengcai is utilising the funding to prepay Jinlian to support the future production and sales of aluminium ingots under the supply contract to be on-sold to GCL under the off-take contract. The sales proceeds from GCL are channeled through a dedicated collection account serving as primary repayment source.

Established in 2010 in Inner Mongolia (so well away from Beijing and thus not contributing to Beijing’s notorious winter air pollution problems), Jinlian is the group’s largest aluminium smelter and ranks the eighth largest single-site aluminium smelter in China. It is equipped with captive coal-fired power plants that can fully supply its electricity needs. Leveraging on the group’s leading market position in alumina, Jinlian is one of the few aluminium smelters in China that can claim 100% self-sufficiency in alumina.


As noted with the 2017 US$650m financing the Shandong Qingyuan Group, an independent oil refiner headquartered in Zibo, had capitalised on the relaxation in China of foreign debt regulations. It sought to tap the more liquid offshore financing market for an enlarged syndication to fund its increased working capital requirements arising from capital expansion as well as settlement of crude oil imports.

The Chinese authorities had been granting crude oil import licences to independently-owned refineries (known in the industry ironically as ‘teapots’) including Qingyuan Group since 2016. By the end of 2016, 19 independent oil refineries had been granted import quotas of almost 1.5m barrels a day – more than the net imports of some European countries. There followed a period of market consolidation when the teapots expanded to compete with state-owned groups.  Pressures from over capacity and a battle for market share between the independent and state-owned companies and a falling demand for refined products was noted by the Financial Times in September 2017. As the FT put it then, “The goal for the surviving independent refineries is to put pressure on state-owned companies to become more efficient without creating an existential threat to their dominance.” Qingyuan is one such company.

Qingyuan has a production capacity of 1.65Mtpa of base oil, a key ingredient for lubricants, accounting for around 40% of China’s production capacity. Its working capital requirements had increased as a result of raising of crude oil import quota allocations for the group of 7.04 million tonnes for 2018 (4.04 million tonnes in 2017) by the Ministry of Commerce – as well, of course, the increasing oil price environment.