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Commodities Traders Brace for Transparency and Stay Private

April 17, 2013
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April 17 (Bloomberg) -- Commodity traders expect the industry to become more transparent amid the rising need for financing and regulatory pressure, even as some merchants remain closely held, company executives said.

Physical commodity traders raised $19.9 billion in equity and debt last year, up from $10.6 billion in 2010 and $1 billion in 2002, according to First Reserve Corp., a private equity energy firm. Senior executives at Cargill Inc., the largest closely held U.S. company, and Trafigura Beheer BV, which buys and sells oil and other commodities, said trading companies’ characteristic secrecy will probably diminish over time as they tap capital markets to grow their businesses.

"The transparency of the private firms will have to necessarily increase," Greg Page, chief executive officer of Cargill, said at the Financial Times Global Commodities Summit in Lausanne, Switzerland yesterday.

Switzerland rejected calls for tougher regulation of commodity traders last month, in favor of a voluntary industry code. The government will study the impact of introducing transparency requirements similar to those in the U.S. and the European Union before deciding how to proceed, Economy Minister Johann Schneider-Ammann said. The alpine nation started investigating the industry in May saying the country was "exposed to risks to its reputation" by being an oil, grain and coffee trading hub.

Vitol Group, Trafigura and Litasco are among privately-held trading companies that operate from offices in Switzerland. Commodity trading, concentrated in Geneva and Zug, boosted its share of the Swiss economy 10-fold over the past decade, according to Zurich’s KOF research institute.

 

Glencore

"Commodities as a business have become more interesting," Pierre Lorinet, chief financial officer of Trafigura, said in an interview in Lausanne. "There have been a few key transactions like the initial public offering of Glencore, and all of that is effectively making us more public."

Trafigura’s financial statements will be made public as part of its $500 million subordinated perpetual bond, which was listed on the Singapore stock exchange last week, Lorinet said.

"The step of releasing information to key commercial partners or financial partners, to releasing it on a broader basis, is a fairly smooth transition," Lorinet said. "It’s also a way for us to get access to additional capital."

First Reserve’s President Alex Krueger said he thinks a financing trend is emerging. Physical commodity trading companies raised $22 billion in 2011, he said.

 

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