Since the onset of Covid-19, both soft and hard commodities have experienced prolonged, substantial uplifts in prices. In both sectors, there was a sharp reduction in demand in Q1 2020. With government stimulus and countries exiting lockdowns, however, demand has returned to pre-pandemic levels. On the supply side, forced factory closures and disruptions to supply chains caused by Covid-19 has meant that the uplift in supply across many commodities has lagged behind demand, driving the price increases.
Whilst soft and hard commodities have their own distinct market influences, there are a number of overarching challenges facing both sectors:
Climate change and ESG: These are likely to be the defining issues across the commodities sector over the coming decades whether it be through the disruption to production/supply by extreme weather events, level of required investment in the transition to sustainable resources or the near term pivot of capital to more sustainable industries.
Fraudulent activities: Over recent years there have been a number of high profile bankruptcies within the sector involving varying levels of alleged fraud. This has led to an increased focus within the sector on AML, risk and compliance which in turn has flowed through to lenders appetite to continue funding the sector, potentially reducing the available liquidity available to market incumbents.
Working capital: The rapid increase in prices across many commodities has increased the working capital demands in what is already a highly capital intensive industry. In the short term this will reduce liquidity and may leave certain companies susceptible to a commodity price corrections, particularly if they focus on a small basket of commodities.
Global agri-foods, resources and consumer brands business with turnover in excess of $3bn.
Appointed as joint liquidator over key companies in the group.
Co-ordinated teams working cross-border and project managed complex workstreams.
Pro-actively managed stakeholder communications and reporting to creditors.
Identified sources of asset recovery from cargo insurance and successfully pursued and settled complex claims.
Dealt with institutions who had financed receivables and potential claims under trade credit insurance policies.
Creditor Advisory
Appointed as financial restructuring adviser to the senior syndicated lenders to a global commodity trading business with turnover of $7bn and debt in excess of $2.5bn.
Worked closely with CoCom to shape terms of new money and reinstated debt to deliver required support. Scope included business plan assessment, options analysis and valuation.
Our role included a red flag review of the business and divestiture plans and advising lenders on strategic options.
Negotiated with legal and financial advisors with respect to the terms of the restructuring, which was ultimately agreed to and implemented by a two-class UK Scheme of Arrangement.
Turnaround
Global steelmaker initially seeking Government support to cover the impact of Covid-19, which then developed into negotiations regarding a full redevelopment of operations.
The business’s largest expenditure was globally sourced commodities used for raw materials.
We were appointed turnaround advisor to the business providing hands-on support to the management team to improve performance, manage cash, develop turnaround business plans and manage various stakeholders.
This work required the review of raw material options, negotiations with commodity suppliers and modelling of potential business plan scenarios and raw material impacts.
