Gunvor Group Ltd., the fifth-largest independent oil trader, secured $675 million in financing for its flagship Ust Luga oil products terminal, adding Russian banks to its lending partners and freeing up capital for other investments.
The facility was oversubscribed, attracting more than $1.3 billion in commitments, Gunvor Chief Investment Officer Jerome Schurink said in a Sept. 13 interview at the company’s offices in Geneva. The proceeds of the long-term facility will be used to fund the Russian terminal’s operations and to complete an expansion of the $1 billion project that began shipping fuel oil in 2011.
“The project was completely under-leveraged,” Schurink said. “It is better for a company like us, having the trading operations but also the assets, to match the maturities with the underlying business.”
The deal caps $1.88 billion in project-specific financing secured since July 29 by closely held Gunvor, which is based in Cyprus with major trading operations headquartered in Geneva. The company has acquired more assets, including refineries, oil terminals, pipelines and coal mines, and moved to secure specific financing for individual projects. These lending deals can provide more favorable terms than the company receives for the shorter-term facilities used to finance its trading.
Ust Luga is the world’s largest terminal transporting oil products from rail cars to ships, according to Gunvor. It has a projected capacity of more than 30 million metric tons a year. Gunvor purchased the terminal, located on the Gulf of Finland near the Russian border with Estonia, in 2008. It began transporting fuel oil in 2011 and light crude products in May.
Schurink wouldn’t disclose the specific terms of the financing, beyond saying it was longer than five years and less than 10 years and had better provisions than the company’s previous lending arrangements related to the terminal.
Credit Suisse AG acted as coordinator and mandated lead arranger for the lending syndicate, which also included Russia’s Gazprombank OJSC (GZPR) and ZAO Raiffeisenbank, the Russian subsidiary of Austria’s Raiffeisen Bank International AG. (RBI) Russian banks accounted for approximately one-third of the lending syndicate, Gia Mai, Gunvor’s corporate finance director, said in the interview.
The lending facility is non-recourse to Gunvor, Schurink said, meaning the banks will be repaid using cash flow from the project and wouldn’t be able to access funds from other company assets in the event of default.
The Ust Luga deal continues the oil trader’s strategy of diversifying funding sources and tying financing to lenders in local markets where assets are located. Before the new lending facility was secured, less than 1 percent of Gunvor’s financing came from Russian banks.
Gunvor was founded in 2000 by billionaire Gennady Timchenko and the company’s chairman and chief executive officer, Torbjorn Tornqvist, to trade Russian oil. Tornqvist said in January that Gunvor planned to build more refineries and was seeking investments outside of Russia.
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