Deal of the month
:«7
UTRECO S BASKET OPTION
WHAT'S NewS Issue 10 November 1997
info exchange
i n
Roger Bradshaw Patrick Guyver TwanGeurts ArnoudDokkum SimonTyler Peter Knoblanche LaiChongTuck
The cliënt: UK sugar company
Tate Lyle
The deal: building and operating
a sugar factory in Northern
Vietnam
The players: From Hong Kong
APFT's Roger Bradshaw, from
Singapore Patrick Guyver, from
•Itrecht Twan Geurts APFT,
.rnoud Dokkum export
finance and Jan Remie
international trade finance,
from Singapore Klaas Hoff of
the Rabobank Foundation,
from London Simon Tyler, from
Sydney Peter Knoblanche and
from Vietnam Lai Chong Tuck.
It is sweet success for agri
project finance team (APFT) in
closing a deal with UK sugar
giant Tate 8c Lyle. The deal,
involving strategie plans to
build and operate a greenfield
sugar factory in northern
Vietnam, is something of a
milestone according to one of
APF's team members Twan
Geurts, 'for us it's a first to
close a deal with a multi
national which is also a major
cliënt.' Initially, the seed was
planted back in April 1996
when Rabobank APFT won the
advisory role against stiff
competition from a Thai bank
consortium, ABN Amro and
ANZ bank. Originally, the
financial model involved 25
percent equity from the various
sponsors, a 13 year tenor for
the debt and a need for rural
credit finance. Together, APFT
engineered a financially feasible
and bankable structure. 'We
came up with a 40 percent
equity with UK based
Commonwealth Development
Corporation adding
subordinated debt to the
project. With the additional
equity and some fine tuning, the
debt then came down to an
eight to nine year loan,' Geurts
continues.
For the rural credit, Klaas
Hoff of the Rabobank
Foundation organized some
10,000 cane growers into joint
liability groups who are able
to benefit from rural credit
loans extended by the World
Bank, Asian Development
Bank (ADB), Vietnam Bank
for the Poor and the Vietnam
Bank for Agriculture (VBA).
The project has become a
benchntark for the VBA in
such rural credit lending. It
provides a neat tie-up of rural
credit funding, using
multilateral financial
institutions, and commercial
projects funded by Rabobank.'
APFT recognized the strength
of IFC, a subsidiary of the
World Bank, and mandated
them to provide senior debt. In
addition, APFT worked
together with Peter Knoblanche
of Rabobank Sydney and
Arnoud Dokkum of Utrecht to
provide USD 10 million export
credit from the Australian
Export Credit Agency. Finally,
Rabobank will also provide a
USD 40 million bridge finance
in order to ensure funding
during the compiicated loan
documentadon process.
'Although we don't have a
branch in Vietnam,' continues
Geurts, 'our Ho Chi Minh
office will be able to share
credit and loan opening and
negotiadon charges with banks
based in Hanoi. This further
enhances the return on
solvency and provides a strong
and continual banking and
advisory role with our cliënt
Tate &c Lyle. The deal has
generated a considerable
amount of fees and is an
outstanding example of how
knowledge based banking can
work - and probably lead to
further repeat business.'
Ultimately, the deal is another
fine example of what can be
done with such a globally
dispersed network.
Investment banking has come up
with an ingenious cost cutting
solution in dealing with
fluctuations in foreign exchange.
Tailor-madefor Nutreco,the
'average rate basket put option'
hedges the currency risk of
dividend payments to the Dutch-
based company - at the lowest
possible costs.The 'average rate
basket'covers a number of
currencies,with an amount
according to how much the cliënt
wants to hedge.The weighted
exchange rate of the basket is
hedged against the Dutch guilder.
Being a put option, a minimum
rate against the guilder is
guaranteed - resulting in the cliënt
profiting from the basket's higher
rates. According to the derivative
and treasury team, 'the reason this
combined option is cheaper than
the sum of every individual option,
lies in the fact that some of the
currencies hedged have a non-
perfect correlation - some even
moving in an opposite direction to
the guilder; one currency could
gain value against the guilder
while another looses value,
meaning the basket is less volatile
than the sum of the individual
options.The basket option has less
risk and therefore lower risk
premiums.'And as another cost
saving addition - being an average
rate, the basket does not hedge the
rateofoneday,butinstead uses
the average weekly rate over the
Coming up with ingenious cost cutting
solutions, the investment banking team left
to right Gerrit Willem Gramser, Brian
Coffey, Frank Weisbach, Maarten van der
Kloot Meijburg, Mark de Weerd, Annick
Gabriels (seated left) and Piet Roelandt
(seated right).
duration of one year. 'In taking this
average,'the team continues, 'the
fluctuations tend to cancel each
other out.The end result is that in
this case, Nutreco, has the same
hedge but at one third of the cost
of a straight-forward option
protection.'
looking ahead^)
November
11-14 Rabobank International
Conference (RICO),
Noordwijk
18-21 VIV Europe, Utrecht
Market studies
Beef/Veal
Grains/Rice
Food Retail
December
8 Forecast 1998, Utrecht
