Global supply chain service group Czarnikow and fund manager Kimura Capital have today announced a new partnership that will introduce a new era of borrowing: banks and funds need not be in competition, but can collaborate as part of the same cycle of funding.
The reduction in banks’ risk appetite, brought about by the tightened regulatory capital requirements and exacerbated by the impact of coronavirus, has disrupted traditional lending structures in commodity finance. Although there is now less of a struggle for liquidity than there was at the start of the pandemic, risk aversion is still present in the banking community, as the infrastructure, transport and hospitality sectors remain on watchlist.
This has meant that for global trade to continue to thrive, other means of filling funding gaps are required. This is where funds play a key role in solving challenges. While current commentary within the sector consistently points to the likelihood of funds replacing banks, Czarnikow and Kimura are proving that this need not be the case.
As part of a recent deal involving the two organisations, Kimura were able to take on risk in a way that traditional banks could not by filling a funding gap with a prepayment facility secured with a perfected pledge over related collateral and included further risk mitigants to secure the transaction. This allowed the production of a commodity (in this case sugar) to take place, with a bank stepping in to help with the margin once the performance risk had been reduced to a level that was viable for them. Both Czarnikow and Kimura embarked on a two-party funding relationship where traditionally there would be only one lender involved.
This working relationship crystalises Czarnikow’s prediction for a future of collaborative commodity finance. Both Kimura and Czarnikow look forward to a bright future of new, innovative solutions requiring cooperation.
Tanya Epshteyn, Head of Structured Finance at Czarnikow, says; “There is no need for one form of finance to replace another. There is a pronounced need and space in the market for the risk takers and the capital providers to work together in a safe, collaborative way that includes all facets of the supply chain and fully supports the real economy, rather than singling out the elements which match the high yield curve or fit the traditional collateral valuation boxes. ”
Craig Manielle, Co-Global Head of Structuring at Kimura added; “Innovative funding structures together with collaborative relationships across the supply chain will be essential in the evolution of Structured Trade and Commodity Financing. This will require synergy between corporates, banks and funds and together with the introduction of technology-based solutions can only help the industry progress. Kimura is proud to start building a relationship with Czarnikow, whom we consider an extremely strong and professional partner to add to our growing and strengthening portfolio. We are confident that this collaboration will be the beginning of much needed change and development within the industry and help deepen relationships across the supply and financing chain.”
You can find out more about our work together on their website here.