* Many traders caught in the Samir refinery bankruptcy
* Risk on the rise, banks ask more questions
* Lending still booming, rates fall further despite risk
* Trading executives speak at the Reuters Summit
By Libby George and Dmitry Zhdannikov
LONDON, Oct 13 Trading houses' lending to
distressed producers and refiners is booming and cheaper than
ever even though many are owed hundreds of millions of dollars
after the collapse of some risky pre-financing deals.
The suspension of production at Morocco's oil refinery Samir
last year cost a string of trading firms and oil majors a total
estimated at close to $1 billion, and similar arrangements this
year have come under stress in Nigeria.
But executives from trading houses speaking at the Reuters
Commodities Summit this week said appetite for such deals was
rising as the levels of distress in the industry from a more
than two-year price rout intensifies.
"That's maybe the sweet spot for us," BB Energy Chief
Executive Mohamed Bassatne said. "Where we are willing to take
the risk, get a foothold and develop that business."
BB Energy had roughly $120 million tied up in Samir when it
collapsed, and it is unclear whether it will recoup that.
Pre-financing is an arrangement under which those with money
or access to it - such as oil trading houses - can give cash in
advance to companies and countries who need it in exchange for
oil, refined products or another form of payment.
When they go well, companies can get exclusive access to
crude or oil products to trade on international markets.
But the deals are dicey. Those seeking money enter into such
deals often because more traditional finance deals are
unavailable for them or are more expensive due to higher risk.
"Every time these things happen, we look at ourselves and
say we have to price risk more aggressively...correctly. And
then we turn around and somebody else has cut the risk premium
dramatically in terms of some other trade," Vitol Chief
Executive Ian Taylor said. "The market is very competitive."
Vitol, the world's largest trading house, also has dozens of
millions of dollars trapped in Samir.
Part of the drive for risk is the cost of finance - with
interest rates at multi-year lows, banks and others with capital
are hungry for any investments that could bring a better return.
"Our view is...the risks are higher now, rather than lower,
compared to a year and a half ago," Gunvor Chief Executive
Torbjorn Tornqvist said.
But financing costs, even on what would fall into the higher
risk category, had not increased. "Generally we are living in a
world where capital is less of a problem than it has ever been,"
Trafigura Chief Financial Officer Christophe Salmon said
even though more banks are asking questions about commodity
exposure before lending money to trading houses, the cost of
borrowing has fallen over the past year. Global interest rates
remain exceptionally low.
All trading executives said they had beefed up their
compliance teams and examined deals more closely to ensure they
are not caught out, although mistakes would still be made.
"We have seen defaults before and we will see more in the
future," said Glencore's head of oil Alex Beard, whose
company is one of Samir's large creditors.
"That (pre-financing) has been a core part of the business,
it's been a good part of the business," Beard said.
(Additional reporting by Amanda Cooper and Julia Payne; editing
by Susan Thomas; Follow Reuters Summits on Twitter