By JENNY GROSS
LONDON -- Gunvor Group and the financial arm of General Electric (GE) have agreed to a lending program that will back part of the commodities giant's oil refinery in Germany, a Gunvor official told The Wall Street Journal ahead of the announcement.
The deal is one of the first instances of a commodity trading house using "factoring," a lending tool, to finance refining operations, Gunvor said.
Large globe-straddling commodities houses, which are often privately held and independent, are increasingly seeking new financing sources in order to expand liquidity as they move into owning physical assets like refineries, warehouses and mines and as trading margins shrink.
In an interview Stefan Gallimore, Gunvor's structured finance manager, said a 225 million euro ($299 million) program had been agreed with GE Capital to insulate the Ingolstadt refinery from financial risk.
"This enables us to have available liquidity in able to pay our suppliers," Mr. Gallimore said. "It's an important way to be able to manage our risk."
Factoring, a type of financing, occurs frequently in the banking sector. The deal means that when Gunvor sells products from its Ingolstadt refinery, for example, it will sell the invoice to GE Capital who can then reimburse Gunvor immediately and take a small fee. This frees up cash for Gunvor by enabling it to receive the payment immediately, rather than wait for payments from the buyer of the product.
Mr. Gallimore said Gunvor was looking to use this type of financing in future deals. This program is the biggest receivable financing program in Germany.
Some of the world's largest commodities traders have recently introduced other new financing tools. Trafigura in April issued its first perpetual subordinated bond, raising $500 million. The move followed a similar $350 million issue by Louis Dreyfus last autumn.
As these companies increasingly snap up physical assets like warehouses to service their businesses, capital expenditure has increased. In turn this has pressured balance sheets just as prices of many tradable commodities -- like metals and agricultural crops -- have tumbled since the start of 2012.
Cyprus-registered Gunvor purchased Ingolstadt in 2012 after the refinery's owner, Petroplus, filed for insolvency. The refinery serves markets in Germany and Austria.
Dow Jones Newswires