Mercuria has teamed up with a Singapore-based asset manager as default-hit banks tighten access to finance and leave commodity firms seeking other funding.
The tie-up with Envysion Wealth Management will see them co-invest in unspecified mining and energy projects, reported Reuters.
The arrangement will see Mercuria present potential projects for investment to Envysion, which will then decide whether to participate via a fund with a start-up amount of $100m to $200m.
The fund for the tie-up is to be launched in around two months, Envysion founder and chief executive Veronica Shim told Reuters.
Investments, expandable to $500m, will initially be in the form of debt financing but can go beyond debt in future, the 20-year private banking veteran added.
“Envysion will have its own investment committee — by hiring former commodity trading executives as consultants — to do its own due diligence before making the final call,” Shim said.
Such tie-ups between companies and fund managers may help fill a financing void left last year after major banks downscaled commodity operations, Reuters reported.
Some of the biggest banks in trade finance have exited the sector in the wake of scandals and alleged frauds in Singapore and the Middle East last year.
There used to be abundant funding for commodity traders but not since major defaults like Hin Leong and ZenRock
George Liu, Mercuria
The collapse of Singapore’s Hin Leong, once one of Asia’s largest fuel traders, left some 23 banks on the hook for as much as $3.5bn in losses.
Hin Leong and ZenRock Commodities both collapsed after being unable to repay bank loans amid a coronavirus-driven crash in oil prices.
“There used to be abundant funding for commodity traders but not anymore since major defaults like Hin Leong and ZenRock,” George Liu, Mercuria’s Singapore-based business development manager told Reuters.
“On the other hand, private funds are sitting there looking for higher returns, but they lack financing channels.”
Commodities trading is a key component of Singapore’s wholesale trade sector, which contributed 17% of the city state’s gross domestic product in 2019.
There are now said to be more than 400 international commodities trading companies in Singapore across varied commodity domains such as energy, industrial metals and agriculture products.
The agreement with Envysion is said to represent a rare partnership with a fund for Mercuria, one of the world's biggest oil traders.
Last September, its chief executive told the FT Global Commodities Summit that it had teamed up with US private equity firms to invest up to $1.5bn in renewable energies.
Envysion Wealth Management, which was launched in 2019, describes itself as a multi-family office, providing private wealth management, and advisory and asset management services.
Family offices are businesses created to run the finances of the world’s ultra-high net worth families and provide services beyond those offered by private banks.
Separately, the Singapore Exchange’s regulatory unit said it will improve requirements on auditors and valuers in their dealings with listed companies, and standards on valuation reports, such as introducing a regulatory regime for the conduct of auditors.
Singapore Exchange Regulation (SGX RegCo) chief executive Tan Boon Gin said the latest rule changes “enhance the standards required of auditors and property valuers in their dealings with listed companies”.
The moves follow market criticism faced by SGX RegCo, the city-state's frontline capital markets regulator, over its handling of accounting irregularities at some listed firms.
